What is IR35?
Changes to the Off-Payroll Regulations (IR35)
You may be aware of the changes to the Off-Payroll Regulations, known as IR35, that come into effect in April 2021. The changes will have a significant impact on the way in which locums and contractors are paid and taxed.
From April 2021 HMRC is changing the off-payroll rules (IR35) if you are a client receiving services from a worker through their intermediary (i.e. locums working through their own Ltd Co's).
What is changing?
The responsibility to assess whether a locum is inside or outside IR35 will transfer from the locum to the client. Consequently, it will be the client whose responsibility it will be to determine whether PAYE and NI deductions must be paid before paying the locum.
And clients will be penalised by HMRC if they do not follow the new rules correctly. The client will hold the liability for tax and national insurance contributions.
Who do the rules apply to?
From April 2021 medium and large-sized private sector clients need to apply them. The private sector includes third sector organisations, such as some charities.
The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:
• they have an annual turnover of more than £10.2 million
• they have a balance sheet total of more than £5.1 million
• they have more than 50 employees
This is in line with the small companies’ regime. Therefore a large percentage of practices in the UK, certainly all of the larger veterinary groups, will fall into this category.
What do clients need to do?
They need to decide the employment status of a worker, they must do this for every contract agreed with an agency or worker.
They then need to:
• pass the determination and the reasons for the determination to the worker and the person or organisation they contract with (i.e. the Agency)
• make sure they keep detailed records of the employment status determinations, including the reasons for the determination and fees paid
• have processes in place to deal with any disagreements that arise from the determination
If the off-payroll working rules apply, they will need to deduct and pay tax and National Insurance contributions to HMRC.
Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.
What are clients going to do about this?
The large veterinary groups have been doing a lot of work to prepare for the changes, they have also liaised with tax specialists to try and find solutions that balance their requirement to be fully compliant with their operational needs for Ltd Co locums.
However, tests that have been conducted by some companies have established that the majority of their locums are caught by IR35 regulations and the results have told them that they fail IR35. as such, the majority of companies are implementing blanket bans on Ltd Co locums.
What does this mean for Ltd Company locums?
From April 2021, if you still wish to locum through one of the companies who have implemented blanket bans you will need to be paid either through an approved umbrella company whereby the umbrella company will be responsible for deducting PAYE and NICs or by working through the companies PAYE scheme. Otherwise, if you wish to still locum through your Ltd Company, you will need to locum through a 'small company' which falls outside of the legislation. Recruit4vets are already establishing which companies are deemed 'small companies' and can help you find work within these practices.
I have put together a blog explain the differences in net take home pay working through the different payment vehicles.
What is an umbrella company?
An umbrella company serves as an intermediary between the locum and their agency or client, with their principal responsibility being to organise payment for your work.
Can you recommend an umbrella company?
There are literally hundreds of umbrella company’s in the UK, like in any sector the vast majority are reputable companies who follow the rules, there are some however who may try to circumvent the new rules. End clients and agencies will therefore need to vet any umbrella company you decide to use, failure to do so could render the end client or agency liable for any unpaid tax.
We work with a number of umbrella companies, however the two we highly recommend are I4groupuk and Danbro Ltd. The reason we recommend I4 Group is because unlike most umbrella companies their professional indemnity insurance covers the small animal veterinary sector, if you are registered with an umbrella company and you think you have professional indemnity insurance please check with them because most don't cover the medical or veterinary sectors. If you already have your own VDS insurance and therefore don't require professional indemnity insurance then its worth considering Danbro because they offer free BUPA cover for you and your children.
Other companies worth considering are: