NHS Contractors IR35 Changes
The new Government NHS Contractors IR35 changes to the rules now mean that every freelancer who works for the NHS will be Inside IR35.
That’s locums, agency nurses, IT Contractors etc. all inside it now.
Or at least their jobs are now – which comes to the same thing.
Government Departments Decide Contractors IR35 Statuses
The Government say that from April 6th contractors will no longer decide their own IR35 status. Previously, contractors decided themselves if they are inside IR35 or outside IR35.
Most decide they are outside IR35 and operate via personal service companies.
Of course, HMRC believe that many of them are inside IR35 and investigates them.
However, HMRC are losing the vast majority of these investigations.
So, it is clear that HMRC are not good judges of who is inside IR35 and who is outside.
New Online IR35 Employment Status Test
Despite that, they have now created a new online IR35 Employment Status Test for contractors and locums.
This purports to show whether a contractor or locum doctor is inside IR35 or outside.
This had no basis in law whatsoever. The IR35 laws haven’t changed at all.
Changed IR35 Rules for Government Departments
Now, Theresa May’s Government have change the rules for Government departments.
The Government departments will now decide if a contractor is inside IR35 or outside.
They must inform the contractor’s or locum’s agency within 31 days of that decision.
However, the people hiring in those departments are not qualified to rule on an issue that HMRC don’t fully understand going by their low success rate in their IR35 investigations.
So, the contractor’s or locum’s agency will have to deduct the IR35 PAYE tax and national insurance from a contractor’s income.
They will take responsibility for the contractor’s income tax and NI payments.
Government Department May be Liable
That’s only if the Government department tell them about it within 31 days of their decisions.
If the Government department forgets, then they are responsible for the contractor’s tax and national insurance.
As they hire thousands of contractors and take contractors and locum doctors on regularly, this is something that has a good chance of happening.
Up till now, the NHS has been using HMRC’s online IR35 Employment Status test to determine a contractor’s IR35 status.
Indeed, one NHS contractor told us that the NHS did this in bulk. They made he and four other contractors sit it together.
Wih the woman from HR cheerleading from the side all five jointly failed the IR35 test.
Now the NHS has gone even further.
All Future NHS Contracts Inside IR35
They have taken the easy way out and decided that all NHS jobs will be inside IR35.
They will not use personal service company contractors and locums any more.
Even if contractors pass the strict HMRC online IR35 it won’t matter as the jobs is inside IR35.
This will cause a massive uproar in the NHS amongst doctors, nurses and IT contractors among others.
It’s no clear yet, exactly what the NHS will do.
NHS Contractors IR35 Changes – Put all Contractors on Payroll
They could put all current contractors on their payroll and deduct PAYE tax and national insurance form their income.
However, that might mean that they would have to give them various rights like holiday pay, pensions, sick pay, maternity pay, employers national insurance contributions etc.
Even if they didn’t a court might force them too.
If the contractors are on the payroll just like any other employee surely they would be entitled to the benefits that employees have.
Make Agency Deduct Contractors’ Tax
They could insist that the agencies take over the contractor’s payroll and make hte agency deduct tax and national insurance.
However, many especially smaller agencies don’t want to create a payroll system just for their contractors.
Indeed some have told their contractors that they would not do this.
So, what is left then if the locum doctors and other contractors cannot use their personal service companies any more?
Contractor Umbrella Company
Why it’s the good old fashioned umbrella company.
I say ‘good old’ but that is from 1999 when IR35 first come out.
Umbrella companies are a very useful tool for the Government.
If the herd contractors into them they only have to deal with a few hundred umbrella companies rather than over a million personal service company contractors.
There has been a Public Sector Umbrella Companies bonanza in recent weeks as contractors have to dump their personal service companies.
It’s a lot easier to monitor a few hundred tax entities than over a million.
Legislating for Umbrella Companies
It’s also a lot easier to legislate for them too. That can be seen with the Government’s rule to stop umbrella company contractors from offsetting travel and subsitence against tax.
The umbrella companies do the Government’s work for them.
They extract the contractors’ tax and national insurance for them and send off huge remittances to HMRC each month.
Government Terrorising Their Own Departments
So, the Government’s policy appears to be to terrorise Government departments so that they herd most contractors into umbrella companies whether the contractors are legally inside IR35 or not.
These NHS contractors IR35 changes are towards that end goal.
This will result in contractors’ take home pay being drastically less, perhaps by 15% to 20%.
This would also mean a large increase in the tax that the Government receives from them.
Then they change the rules for the umbrella companies who then have to enforce these rules.
Contractors v Permanent Employees
The Government started all this because they believe, as Chancellor Hammond said in his budget, it’s not fair that a contractor earning £100,000 a year pays less tax and national insurance than a permanent employee.
After all, they use the same facilities he said.
So, if this belief fashions the Government’s actions towards contractors, why would they think that this is only unfair as regards public sector contractors.
Why would they not think that is is unfair that a private sector contractor should pay less tax and NI than a permanent employee?
And if they do believe that then would you they not believe that they would have to do something about it?
Public Sector IR35 Pilot Project
The smart thing for them to do would be to try it out in the public sector first, where they control the rules and don’t have to change the laws.
Then, when the pilot project is complete, they would roll it out in the private sector too – where it would bring in lots more tax money.
Indeed, we have heard from once source that HMRC are already making plans for this behind closed doors.
It would certainly make sense.
Are Contractors Groups Prepared for Private Sector IR35 Battle?
So, are contractors, and their representatives, preparing for this eventuality and setting up their stall to oppose it.
It seems that they are being reassured by Government Ministers sho say that “we have no plans to roll it out in the public sector”.
That gives them wriggle room. They are not saying that they won’t do it – and they could start planning it at a future stage.
These NHS Contractors IR35 changes could well be rolled out not just across the public sector but the private sector too.
Private sector contractors should beware.
Unless contractors get ready for his battle, then contracting may well be finished in the UK.
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