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

"It is expected that locums will be asked to go on the payroll"

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

6 Comments

Andrew Jukes, Locum pharmacist

I thank you sincerely for addressing this topic. I have been researching IR35 since it was introduced into the public sector in March 2017. I am aware of not only salary reductions for locums but severe 'secondary effects' causing service deterioration, with less locums as they leave service due to lower wages.In addition a reduction in available locum posts has been experienced by some recruiters, as budgets contract as there are added costs to businesses to operate this framework. The EMPLOYER will be responsible for assigning a locums tax status under IR35, in accordance with HMRC definitions, and then taxation will be deducted at source rather than in the past via, for example a locums accountant on behalf of HMRC when annual accounts are submitted.. If operating a limited company for example there will be a significant pay reduction when you compare corporation tax versus IR35. I have felt this personally to such an extent that it comprimised my whole work viability and created many financial obstacles. The 'secondary effects' are not on the radar of most of the profession, with all due respect, but they are real and are still being felt now from the public sector roll out.. One day soon the coffee beans will provide a waft that gets noticed. This is NOT going away.

What has staggered me is the lack of 'pick up' of this topic by the profession generally ....A head in the sand/'sleep walking into danger' stance. IR35 is now being consulted in government for the private sector, and will be live in 2020 I am sure.

I am NOT an accountant and individual professional bodies and organisations are not either but they should have been sign posting on this a long time ago to prepare locums in advance for what is highly likely to impact upon them.

My advice, from research and experience, is for locums to seek robust tax advice from an accountant, as everyone has individual circumstances. Do not rely solely on HMRC's 'CEST' tool to determine IR35 status as its reliability is questionnable including counteraction in the courts by some locums incorrectly assigned.. A lot of employers going fowards will not permit the use of limited companies in 2020 and there will be no tax advantages using them anyway. The use of umbrella companies dictates the use of 'IR35 Compliant' versions but this will NOT totally avoid the HIGHER tax liability if deemed inside IR35 (that the employer decides), as deductions will be made by the employer BEFORE payment to the locum.. There are real risks to individual earnings, service delivery if locums leave, and impacts on businesses in terms of related costs. You cannot compare apples with lemons, BUT it is an 'indicator' to review what has happenned in the public sector.... Please research readily published articles via a general search..There has been some real damage done and it at least needs risk assessing generally, and for individuals to assess thier own circumstances via a qualified accountant.

An additional wealth of resource on IR35 is via www.contractorcalculator.co.uk ,who are in addition supporting a national campaign to halt the introduction of IR35 into the private sector.They also have a wide range of evidence and data on the impacts of IR35 and good quality articles.

I would say, learn more about IR35, be aware, risk manage and don't avoid whats coming as it will have consequences. Another 'can of worms' is the employee/locum or contractor status and how you may or may not be entitled to any benefits such as expenses etc if your position changes....All this needs to be factored in.

Well done on raising this issue ...I was wondering if I would ever see it addressed or if it would remain the issue to lay a carpet over in the long term and then just REACT when problems occur,rather than advise and mitigate the risks.It's so easy to avoid eyes in corridors, to park a difficult issue, or pass by on the other side of the road but that level of management of an issue will get us where we deserve ....NO WHERE!, and this is too important not to tackle NOW.

This is probably the single most important issue, given the impacts, non addressed i've seen in my entire career--It's not solely about an individual locums salary. It has impacts on services and patient safety....

*Could you manage a salary reduction?, if so by how much?

*Could you cope If you had less colleagues in your shop or business?

*What would be the financial impact on your business due to IR35?

*What would be the impact on the service and patients with less staff?

*Would patient safety be affected?

In addition IR35 will be adding into a 'perfect storm' of co-existing factors...such as budgetary cuts, rising costs, competition from online and other service providers in very challenging times.....We have already witnessed a 'round' of Pharmacy closures en masse and individually.Can Pharmacy businessess and locums alike afford NOT to care about this issue, going fowards?

Please research the issue......I hope this helps ...I'm sharing my thoughts from research and personal experience but if you have not considered this please seek professional advice in advance of the private sector roll out in 2020.

Heads in the sand don't tend to see very much!

A profession, professional organisations,businesses, employers and individuall professionals,, with respect, in ABSOLUTE DENIAL.

 

Caroline Jones, Community pharmacist

Does this just impact locum community pharmacists; or those pharmacists employed in primary care as well?

Andrew Jukes, Locum pharmacist

Anyone locumming via a 'Non-Employee' method potentially i.e Limited company, umbrella company ...it's essential to establish where YOU stand via qualified advice.

Michael Achiampong, Community pharmacist

Thank you Umesh for this very important tax status update. I am sure many of my locum colleagues will appreciate some, if not all,  of the solutions you have indentified. For example "tax investigation insurance" is something that I have not considered before as I am 100% legit with my online tax and NIC declarations. However, please would you clarify on what you mean by "inexpensive"?

Paul Kelly, Community pharmacist

it costs me around £75 annually

Andrew Jukes, Locum pharmacist

Tax investigation insurance is always worth considering. If you are subject to scrutiny by HMRC and you have to pay an accountant to help with this it could be extremely expensive as it will occupy a sunbstantial amount of your accountants time. .....I get this included as part of indemnity insurance. If you ave a policy check if this is included or not. If not consider getting some cover in place. There are numerous providers in the  market.

 

 

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