This question has become a hot topic in the pharmacy and optometry locum worlds and was discussed at a recent event hosted by the Company Chemists’ Association at the Royal Pharmaceutical Society premises on 13th February 2019. HMRC had been invited to make a presentation to CCA members and other interested parties regarding IR35 and whether or not locums fall ‘In’ or ‘Out’ of payroll working rules. Team Locum Limited are taking a keen interest in these ongoing discussions and would like to share this information with both clients and locums.
So why is this important and what does it mean for you?
- What is IR35? This is a piece of legislation enacted in the Finance Act 2000, Schedule 12 Provision of Services through an intermediary. It is more typically referred to as the ‘intermediaries legislation or ‘IR35’
- What does it mean? Put very simply ‘Contractors’ can provide services to a client and bill that client directly for those services but not be an employee of that client. The client pays the contractor and the ‘Contractor’ is responsible for their own Tax and NI Contributions. This is how locum work operates for Optometrists and Pharmacists currently. So locums are working outside of IR35
- What happened in the public sector? In April 2017 new legislation was passed which meant that for those working in the public sector many categories of contractors were deemed to be employees rather than being self-employed. This legislation made clients responsible for assessing contractor status and for ensuring that where contractors were deemed employees then the necessary Employers National Insurance contributions were made. These contractors were working inside IR35
- What are the proposals for the private sector? From April 2020
- Businesses will be responsible for assessing an individual’s employment status
- The reforms will apply to large and medium businesses and from 6th April 2020, medium and large businesses will need to decide how the IR35 rules apply to an engagement with individuals who work through their own limited company or through an agency.
- Small business with turnovers below £1.5 million will not be subject to the reform.
This raises a couple of key questions
- How do I check the status of a contractor (i.e. a Locum Optometrist or Locum Pharmacist)?
HMRC have provided a tool to assist you. Just go to https://www.gov.uk/guidance/check-employment-status-for-tax . This link takes you to HMRC’s ‘Checking Employment Status for Tax’, known as the CEST tool. Each contractor is considered on a ‘case by case’ basis so clients wishing to contract the services of a locum will need to ensure they have evidence they have checked the employment status of that locum.
- What criteria are used to make the assessment?
A variety of criteria are used to make the assessment. You will be asked the following questions:
- About the worker’s duties
- About substitutes and helpers
- About work arrangements
- About the worker’s financial risk
- About the worker’s integration into the organisation
Before undertaking the test it may be useful to read HMRCs Employment Status Manual. See link below.
HMRC and relevant Case Law consider the following:
- Contract ‘of service’ or ‘for services’
- Is there a contract at all? ‘Mutuality of Obligation’
- Substitution – is there a right of substitution in the contract? Is this unfettered or fettered?
- Control – employment status and control over experts
- Financial Risk
Watch out for our next blog where we’ll be providing much more details on the five points above
Some helpful HMRC pointers for you in the table below to help you decide whether locums will be working inside or outside of IR35:
|An employee is generally reimbursed for expenses||An independent contractor is responsible for their own expenses|
|An employer reserves the right to dismiss an employee at any time||An independent contractor is contracted to complete a set task. The payer may only terminate the contract without penalty where the worker has not fulfilled the conditions of the contract. The contract will usually contact terms dealing with defaults made by either party|
An employee is generally recruited through an advertisement by the employer
|An independent contractor is likely to advertise their services to the public at large|
|An employer usually pays an employee according to an aware or agreement regardless of the task done and may be paid weekly or monthly sums||A contractor usually invoices the person who engages them for their services based on negotiated terms and on completion of the task|
|An employee is usually an integral part of the employer’s business||A contractor’s work is usually an accessory to the business|
|An employer determines or controls the time frame in which the work is to be performed||The work would be performed in accordance with schedules that both agree on. The contractor can negotiate on a level basis on when the work can be concluded or carried|
We’re keen to raise awareness amongst both clients and locums regarding these potential changes in the legislation. We’ll be consulting with our locums, clients and HMRC and we’ll be providing you with regular updates as we find out more information. We would recommend that you start taking advice from your accountants, HMRC and your legal advisors to ensure that you are ready for April 2020.