IR35 reform was introduced to tackle the issue of tax and NI avoidance within the and private sector. The changes were implemented in the private sector in April 2021 and directly impacted 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’re aware of these changes, as they are likely to have affected your net salary through an increase in the tax and NI that you pay.
Who is impacted by the IR35 changes and why were they introduced in the private sector?
HMRC made the changes to combat what it perceived to be false self-employment (or “disguised employment”) through the use of personal services companies (“PSCs”). The changes were designed to ensure that work carried out by those providing their services through a PSC are appropriately categorised for tax purposes - either genuine self-employment (“outside IR35”) or taxed as employment (“inside IR35”).
The new IR35 legislation ensures 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.
1. It is the responsibility of the end client (or hirer, or engager) to determine your tax status
Following the implementation of the rules, it’s the end client (i.e. the company which you are assigned to) which is responsible for determining you tax status. 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 falls 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.
HMRC are effectively 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.
2. Correct tax is likely to mean less take home pay
Limited Company workers who previously determined their status as self-employed, yet find themselves treated as employed for tax purposes (inside IR35), are likely to find that their take-home pay is now 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.
3. Be aware of operators offering schemes
Compliance with employment and tax law is at the heart of Search’s business. The IR35 changes 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 now 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 long standing 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.
4. There are benefits to becoming a PAYE employee
There may be reasons why you may wish to continue to be paid via your Personal Service Company, despite the changes that have resulted 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.