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How will locums be affected by the IR35 tax law changes?

Pharmacy accountant Umesh Modi unpacks what changes to UK anti-avoidance tax legislation could mean for locum pharmacists

In the 2018 budget, chancellor Philip Hammond announced that the “off payroll” rules, IR35, will extend to the private sector from April 2020 and only small businesses will be excluded.

This means that every medium and large pharmacy company will be deemed to be the employer of the locums it hires.

In the past, the locum or their personal service company [a limited company selling the self-employed work of an individual] were deemed to be the employer of the contractor’s services. What Her Majesty’s Revenue and Customs (HMRC) is effectively doing from April 2020 is taking out the personal service company from the equation, so that for medium and large pharmacy businesses, the tax relationship exists directly between them and the individual locum. The employer will then be responsible for the unpaid tax, national insurance contributions and penalties, instead of the individual or personal service company, as the situation was previously.

The new rules will apply to all large and medium-sized companies (defined under the Companies Act 2006) that rely on services from locums or their personal service companies. The pharmacy company will have the responsibility to get the employment status of its locums right.

There is a consultation on the implementation of the reform, which closes on Thursday (May 28).

Options available to locums

It is expected that locums will be asked to go on the payroll of pharmacy companies. But there are other options:

  • If you can show you do not work solely for one employer and have multiple sources of income, you should not have a problem.
  • To determine your employment status, it is advisable not to rely solely on HMRC’s 'check employment status for tax' service, as it does not take into account many factors. Have a detailed IR35 review of your existing contract from an employment status expert.
  • Insist on a confirmation of arrangements letter from your employer, which outlines the detailed nature of your contract. This will come in handy in case of an IR35 investigation. The document will show that you do not work under direction of your employer, as well as your right to provide for a substitute etc.
  • Keep proper records to prove that you fall outside IR35 rules; for example, if you have booked your own holiday without need of prior approval by the employer.
  • Take out tax investigation insurance to be safe, as it is not expensive.

HMRC’s application of the law relating to IR35 will become much clearer after the consultation and many locums should be able to address their IR35 status by April 2020.

Umesh Modi is a chartered accountant and tax advisor, and a partner at Silver Levene LLP


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