Changes to IR35 - Are contractors and freelancers ready?

Tags: IR35, healthcare, blog

Changes to IR35 are coming and it affects healthcare workers – Are contractors and freelancers ready?

For those unfamiliar with the term, IR35 refers to the UK’s anti-tax avoidance legislation designed to tax “disguised employment” at a rate more in line with PAYE employment. In the context of IR35, "disguised employees" describes workers who receive payments from a client via an intermediary - usually their own limited company - but who are contracted to the client in such a way that they are effectively full-time employees.

Often referred to as the "Friday to Monday" scenario, it has been feasible for a self-employed worker to leave a worksite on a Friday and return the following Monday to continue the same work, for the same company. However, as a contractor via their own limited company, these workers could pay themselves a dividend thereby dodging the additional tax burdens applied to PAYE workers doing the same job, also for the same company.

Support for IR35 has been lacking in some quarters and its effectiveness as a revenue raising initiative has also come under fire. However, it now established legislation and has been subject to various reforms. Many are unaware, but another reform is imminent.

April 6th, 2020

Since 2017, public-sector organisations using contractors and freelancers have been responsible for deciding their employment status. However, where contractors or freelancers have been working for private-sector clients, responsibility for deciding employment status for each contract has rested with the intermediary.

The changes mean that from April 6th, 2020, all public-sector and medium-sized and large private-sector organisations who use contractors and/or freelancers will be responsible for deciding whether IR35 rules apply.

For the first time, self-employed healthcare workers will find themselves within the grip of IR35, yet doubt has persisted as to how many of these workers are aware that change is coming and what it means for them.

Search does some digging

With many self-employed healthcare workers amongst our client-base, Search were well placed to get an idea of whether this sub-set of the UK’s healthcare workforce knew what these changes meant or, indeed, if they were even coming.

We began by gathering a sample of respondents who fit the criteria of being a self-employed healthcare worker and showed them a video we had made detailing what the changes to IR35 will look like, and how they could impact their working arrangements.

Worryingly, less than a third (29%) of the respondents described themselves as being “fully aware” of the impending changes. The rest either had an incomplete knowledge, or none at all.

Implications for the healthcare sector

Lacking knowledge of changes in tax arrangements is relatively common, it is what workers do that with that knowledge once it has been acquired. Armed with an understanding that there exists a likelihood their take-home pay will be affected, the healthcare workers were asked whether this would compel them to consider altering their working arrangements.

Though 45% responded that they intended to carry on with their contract work as before, the intentions of the remaining 55% may well see private healthcare organisations experiencing some turbulence with staffing. 35% claimed they now intended to look at reducing the amount of contract work they accept, whilst 20% told us they would now explore leaving contract work altogether.

How all this will play out after the April 6th date, remains to be seen. Fewer contractors will reduce the burden on healthcare companies to ensure IR35 is being properly applied, but it could also lead to staffing issues. Many such companies rely on contractors for the flexibility it affords. Should those companies be unable to provide full-time work on a PAYE basis and as many as 20% of contractors are suddenly removed from the available pool, an obvious dilemma becomes apparent.

For those healthcare workers, or indeed any workers, who are concerned the changes to IR35 will affect them, we advise you speak with your client companies.

What to do next?

You may feel that, as a result of the changes, you would prefer to seek permanent employment. If that’s the case, we encourage you to speak to our permanent recruitment team at Search, who you can get in touch with here. They can help you to update your CV and offer you long-term career opportunities with the UK’s leading healthcare providers.

Ultimately, most healthcare workers will find they fall within IR35 because they are working under the supervision, direction and control of their employer and their job is the same as a permanent member of staff. Also, they have the right to substitute themselves if they can’t work and they will be paid even if their work falls short of expected standards.

If you would like further guidance on this, please do not hesitate to contact Search.

You may also like:

IR35 Changes 2020 - What Healthcare Workers need to know

IR35 Changes 2020 - What Private Healthcare Companies need to know