IR35 and the Locum
In April 2017 some substantial changes are to be made to the IR35 tax legislation.
Those amendments, confirmed by the chancellor last year, could have some serious implications for any practice that uses locums.
Briefly, the changed law will mean that where locum GPs are engaged through their own limited company to work for a GP practice, responsibility to apply the IR35 rules (also called the ‘intermediaries’ rules) will fall to the GP practice paying the locum through his or her company.
That means GP practices would be liable to pay any associated income tax and National Insurance.
Given the continuing need for locums – and in many cases their high cost – this is a potentially serious piece of news for practices.
While the HMRC is yet to publish a promised new interactive online tool to help practices clarify whether the IR35 intermediary rules apply on a case-by-case basis, it’s thought regular locums are at risk, while those who are genuinely ‘stepping in’ if a GP is off sick or on annual leave, who are not controlled by the Practice, may be okay.
When it is released, if the tool says the engagement is inside IR35, employment taxes will be deducted at source; if the tool says it’s not within IR35, the contractor company will be paid gross and account for tax like a business, at year end – as it always has done.
For BMA Law’s guidance, click here
While the above provides an overview of the new rules, it’s also worth looking at some of the detail, starting with the regulation itself.
IR35 is tax legislation that relates to workers engaged through intermediaries – principally companies that the worker owns (Personal Service Companies or PSCs).
Until April 2017, it is the responsibility of the PSC to decide whether the individual worker should be classed as an employee of the client.
The current IR35 rules have served to protect clients from tax liabilities where they have engaged locums and other contractors through PSCs, but the new rules effectively remove this protection from ‘Public Authorities’, a definition that most GP practices will be caught within.
In the first instance, it will most likely fall on the practice (not the PSC) to work out whether the person engaged by the PSC to do the work should be regarded as an employee of the practice for tax purposes. If they are, the practice will be responsible for deducting PAYE and NI from payment (if they pay the locum, rather than an agency). Additionally, and this is the bit that most experts seem to think is seriously unfair, the practice may be liable for unpaid taxes, interest and penalties.
With the above in mind, what can you do to ensure you don’t fall foul of the new IR35 rules?
The first job, ahead of April 2017, is to review your working arrangements with existing PSC contractors and anyone you expect to hire. It’s worth noting that, where work is completed before 6 April 2017 but the payment is made on or after 6 April 2017, the rules will still apply.
We would advise a read through the recently published guideline documents. They can be found here. It’s also worth considering whether you can benefit from instructing an independent expert to carry out a review on your behalf.
The checking tool referenced above will also be a crucial tool, when it goes live, so keep a keen eye on the HMRC website for more information. The tool will appear on the page we linked to above, so watch that space!