What is IR35?
IR35 legislation, which is also known as the ‘intermediary’s legislation’ is a set of rules that aid in the determination of the tax and National Insurance a candidate working through an intermediary should pay, based on the substance of that working arrangement.
What does IR35 mean for HCP’s?
At Next Step Nursing, we are here to help each of our workers to understand the new IR35 legislation, which will come in to effect from the 6th April 2017. Depending on where you work for Next Step Nursing (public or private sector) and if the assignment you undergo falls within IR35, you will choose to work via PAYE or an Umbrella company. One of the Next Step Nursing’s team will be able to offer you assistance to make a smooth transition from a Limited company to an Umbrella product. This is an easy process and we will happily help support you with this.
The announcement made by the Chancellor during his 2016 Budget speech was that “Public sector organisations will have a new duty to ensure that those working for them pay the correct tax, rather than giving a tax advantage to those who choose to contract their work through personal service companies.”
The IR35 changes do not apply to the private sector or those employees on the payroll, but will apply to agency workers, such as those in the NHS. It appears that the changes are already impacting upon many in the public sector, who previously operated using these personal service companies. It has been stated that the purpose of the change is to deal with the deemed widespread non-compliance that has occurred.
Many workers will find that they have not set aside sufficient funds to account for their tax liabilities and the common outcome is that it will create an overdrawn director’s loan account, with a balance repayable to the company.
What is changing?
These rules were originally introduced in April 2000. HMRC has estimated that there is widespread non-compliance and that only 10% of personal service companies who should apply IR35 to their working arrangement actually do so.
To ensure greater compliance, they are thus changing where the responsibility for applying these rules sit, from the intermediary, to the body paying the fee of that intermediary worker.
When does IR35 apply?
With effect from 6th April 2017, there will be changes to IR35 tax system which will impact upon many people who supply their services on a self-employed basis to public sector employers. It will mean that the duty for making sure those who work for a limited company pay the correct level of tax and National Insurance will change from individuals to employers and agencies.
Who decides if IR35 applies?
The decision of whether IR35 applies to the working arrangement now rests with the public body (i.e. NHS Trust or Health Board) where the work is actually being conducted. It is therefore not up to the intermediary worker to provide evidence of whether IR35 applies, but rather a decision made by the ultimate employer.
If IR35 applies, how is that decision made?
There is a set of specific rules in the IR35 legislation that the public body will apply in making this decision. In simple terms IR35 applies if a worker is providing services to a client under circumstances that, if not for the involvement of the intermediary, would be viewed as employment (regardless of contract length). HMRC will release an online assessment tool to aid with the determination of whether this legislation applies to a working arrangement.
It is important to note that the decision of whether to apply these rules to a working arrangement will solely rest with the public body.
Who will this impact if the rules are deemed to apply?
From 6 April 2017, NHS Trusts and Health Boards will have new responsibilities to inform locum agencies and candidates if the role required falls within or outside IR35 legislation. If a role is deemed to fall within IR35 and the rules apply, then the relevant tax and National Insurance will be withheld from payment to the intermediary and paid over to HMRC on their behalf (note, that this is not the same as PAYE).
What action should I take?
If you are not currently being paid via PAYE, we would strongly recommend that you contact your accountant or umbrella company for advice on how the changes are likely to impact you.
Your accountant is in the best position to understand your situation and how the rules will impact you, as well as giving you advice on the cumulative impact of other changes that have been introduced.
These include prohibiting personal service company or umbrella company workers from claiming tax and National Insurance relief on travel and subsistence expenses for an ordinary commute from home to work, and recent dividend payment restrictions.
We are already seeing signs that NHS Trusts and Health Boards are starting to build compliance with IR35 into their selection processes and as we move closer to the implementation date of 6 April, this will become even more evident. The sooner you have a sound understanding of your own position, the better placed you will be to continue to work uninterrupted.
We have collated a list of resources and useful webpages which provide more guidance about the IR35 legislation.