Today, many people choose to work in diverse and flexible ways, which can have a direct impact on their tax status. This has formed the basis of recent high-profile court cases, such as TV presenter Lorraine Kelly’s [which ruled in March that she was self-employed].
These changes raise questions for the community pharmacy sector, as we navigate new working practices. We also need to review what we consider to be ‘normal’ practice to ensure that how we operate reflects current case law.
In recent months, the CCA has been leading the sector's engagement with Her Majesty’s Revenue and Customs (HMRC) on these issues. We co-hosted a seminar with representatives from HMRC’s compliance teams in February. Delegates attended from organisations across the sector, including government bodies, regulators and locum agencies.
First, we looked at government plans to extend IR35 tax reforms to the private sector. These plans will mean that businesses will need to decide if the people they contract fall inside the IR35 regulations (ie ‘on’ the payroll) and ensure they pay the right tax and national insurance contributions (NICs).
Secondly, we looked at HMRC’s engagement with pharmacy as part of its increased scrutiny of how locums are used.
These topics are both reliant on the same determinants, or "tests", to assess employment tax status.
IR35 legislation is a crackdown on the use of intermediaries, including personal service companies [an individual’s limited company selling their self-employed work]. The reform promotes equal payment of tax for workers who do the same job irrespective of their actual employment status. From April 6, 2020, the responsibility for assigning the right tax status for locum pharmacists will fall to their employer. Pharmacies that meet the Companies House definition of a small business will be exempt from this.
Another big change from April 2020 is that the employer will be liable if tax is not correctly paid. There is a risk that some business owners will conclude that everyone they engage in work is inside of IR35 and ‘on the pay-roll’. However, this could go against the interests of legitimately self-employed workers.
In addition to IR35 changes, HMRC is directly engaging with businesses and scrutinising the current use of locums to determine whether they have been working in an employed capacity. This involves assessing the arrangement between the employer and locum through some key determinants or "tests" of employment status.
We have concerns about how applicable these tests are for pharmacy. For example, a locum may sign in as the responsible pharmacist, which could be seen as holding an office of the company – being an office holder can be an indicator of employment.
Or it could be inferred that the locum may be under the control of the superintendent pharmacist, and similarly classed as an employee. Also, we think it would be unusual for a business to accept a locum they hadn’t directly booked, while still paying the original booking, which could render invalid the right to substitute your services for another’s – another test – again indicating an employed status.
We've also raised concerns with HMRC about their ‘check employment status for tax’ tool as an instrument for assessing an individual's tax status. We are not confident that it is refined enough to determine employment status for pharmacists. We've asked HMRC to consider our feedback and provide tailored guidance that considers the contextual factors that affect our sector.
We are worried that the proposed changes and increased activity come at a time when pressure on workforce supply in pharmacy is increasing and the impact of IR35 changes to locums working in the public sector has not been assessed.
There is still much to be done to develop an understanding of how to determine the tax status of pharmacy locums and contractors. We will continue to work with HMRC and the wider sector and to share our progress. We are determined to do all we can to help provide the clarity needed to correctly assess the tax status of locums.
The government is consulting on the IR35 regulations. Find the details here.
Rebecca Lucas is policy and programmes manager for the CCA, which represents the UK’s largest multiples and supermarket pharmacies