Private Sector IR35 rule changes for locums....
In the budget of 2018 the Chancellor decided that IR35 ‘off payroll’ rules will be extended to the private sector from April 2020 onwards, directly affecting a large number of locum vets and nurses.
‘IR35 legislation is designed to determine whether a non-payroll worker is a bona fide contractor or is essentially a direct employee of the company he or she is working with.’
This will mean that veterinary practices which engage individuals who supply their services via their own company (Intermediary) will be responsible for determining whether the IR35 rules apply.
If the practice considers that IR35 applies, the person paying the Intermediary will be responsible for operating PAYE and NICs on the fees it pays to the Intermediary.
What is changing?
The Intermediaries Legislation (IR35) has been around since 2000 – its aim is to remove the tax advantages of providing services via a limited company for individuals who are not truly in business on their own account.
Currently it is the Intermediary, rather that the client, who decides whether IR35 applies. Successive governments have claimed that too many limited company owners are flouting the law and working outside of the rules.
As a result, new ‘off payroll’ rules were introduced in April 2017 for contractors working for public sector organisations. Instead of contractors themselves being responsible for determining their IR35 status, this obligation has been handed to the engager of each contractor, i.e. the client.
Where a contractor is deemed to be ‘inside’ IR35, the client must deduct employees’ NICs and income tax from the contractor’s pay, as well as paying employers’ NICs.
At the 2018 Budget, the Chancellor announced that the ‘off payroll’ rules will be extended to most private sector businesses from April 2020. Only small business clients will be excluded.
What are the implications?
This is a significant change for the private sector which will require a significant investment in terms of cost and time. Practices need to properly assess a contractor’s employment status and also be able to deduct tax and NICs from consultancy fees.
HMRC launched an online tool (“CEST”) to help clients determine whether IR35 applies.
Practices using individuals who supply their services via an Intermediary should start preparing now for the implementation of these new rules, including:
- Establishing a process to help staff determine whether IR35 applies
- Reviewing existing contracts with Intermediaries (including where the Intermediary is supplied via an agency) that will still be in place in April 2020 and considering whether IR35 will apply.
- Ensuring any new contracts are compliant with IR35 rules
- Ensuring that payroll and accounts payable systems are able to cope with the changes
For further information visit IR35: Working through an intermediary