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IR35 reform was introduced to tackle the issue of tax and NI avoidance within the public, and more recently the private sector. These changes are due to be implemented in the private sector in April 2021 and will directly impact many organisations in the UK across multiple sectors.
It is important that if you’re a nurse currently working on a self-employed basis, that you understand these changes, as they are likely to affect your net salary through an increase in the tax and NI that you pay.
HMRC is making the changes to combat what it perceives to be false self-employment (or “disguised employment”) through the use of personal services companies (“PSCs”).The changes are designed to ensure that work carried out by those providing their services through a PSC is appropriately categorised for tax purposes - either genuine self-employment (“outside IR35”) or taxed as employment (“inside IR35”).
The new IR35 legislation is set to ensure that those workers deemed to be “disguised employees” are taxed, through PAYE and National Insurance, in exactly the same way as any other employee.
We look at the important changes brought in by IR35 that nurses need to be aware of.
Currently, the limited company contractor decides whether or not the work they are doing is inside IR35 or not. And this decision determines how their income is treated for tax purposes.
From April 2021, it will be the end client (i.e. the company which you are assigned to) which is responsible for making that determination. HMRC has provided information and guidance for them, including an assessment tool, to ensure that the correct determination is made.
Each role will be considered individually, but it is highly likely that the work of nurses will fall inside IR35.HMRC has a very clear view on the employment status of nurses - they believe that a healthcare professional will invariably be subject to, or to the right of, supervision, direction or control over the manner in which he or she carries out their work.
“A qualified nurse, who is not an employee of the agency, working other than in the home of the client, will generally, be treated as an employee in accordance with the agency legislation. This is because the nurse will usually be subject to, or to the right of, supervision, direction or control over the manner in which he or she carries out the work.”
Effectively this is saying that, unless a nurse is qualified and working in the home of a client (“domiciliary care”), HMRC believes that the nurse is employed for tax purposes (i.e. “inside IR35”).
End clients are duty-bound to use reasonable care in making the IR35 determination, and Search as the fee payer is duty bound to observe the determination, and deduct PAYE income tax and National Insurance accordingly.
Limited Company workers who have up until now determined their status as self-employed, yet find themselves treated as employed for tax purposes (inside IR35) from April 2021, are likely to find that their take-home pay is reduced as a result of additional taxation.The reduction could be between 20% and as much as a third depending on the pay rate and circumstances of the PSC.
Compliance with employment and tax law is at the heart of Search’s business. The changes coming through IR35 reform are not unique to Search, and agencies that may say otherwise either do not understand the changes or intend to employ and remunerate workers in a non-compliant fashion.
Umbrella companies - intermediary organisations acting as an employer between the agency and worker, may well be looking to step forward to offer an alternative to agency PAYE employment.
Nurses in particular should exercise caution as:
a) They will be charged for a payroll service, which could be up to £25 per week
b)Some companies may use non-compliant schemes to reduce tax deductions paid.We have had experience of nurses being hit with large unexpected income tax bills having been attracted by such schemes during the public sector IR35 reforms.
c) Clients in the private sector benefit from a VAT concession for qualified nurses (the “Nursing Agencies Concession”. This legitimate tax benefit is compromised when using an umbrella company. As a result, this may prevent nurses from securing shifts at certain healthcare companies.
If you are still interested in the umbrella route, Search has longstanding commercial relationships with a number of reputable umbrella companies, which have been subject to our own compliance checks.. This may be an option if you would like to explore work in the NHS.
There may be reasons why you may wish to continue to be paid via your Personal Service Company, despite the changes that will result in you being taxed as if you are an employee.We recommend that you take advice from your accountant about the operation of your PSC and the impact of IR35 reform.
However, there are benefits of being a PAYE employee of Search that make it an attractive alternative. You will still be able to enjoy the same flexible working arrangements to suit your availability at a competitive rate.Search operates its own payroll, and can process your pay as an employee, dealing with all of the necessary statutory deduction, without incurring an umbrella company payroll processing charge.
“When the changes were introduced in the Public Sector in 2017, the nurses we assigned to the NHS trusts overwhelmingly opted to be employed as PAYE workers and have happily continued since,” says Chris Pritchard, Director of Search Health & Social Care “We understand the changes will impact those who have chosen to operate as limited companies and it may no longer be the most lucrative option, but Search will continue to be able to secure you just as much work at the UK’s leading healthcare organisations as a first-tier recruitment partner”.
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. They can help you to update your CV and offer you long-term career opportunities with the UK’s leading healthcare providers.
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