IR35 is a tax legislation originally devised in 1999 to combat tax avoidance by those supplying their services to a client by means of an intermediary (such as a limited or personal service company) but would be classed as an employee if an intermediary was not used. This legislation particularly affects those in the medical sector, such as a locum and contract workers.
The idea behind IR35 is to determine whether you are seen as a self-employed contractor supplying your services to a client or if you are effectively an employee of the client supplied to them via a third-party. The differences in categorisation are in how much tax you owe and getting it wrong can mean heavy penalties from HMRC.
Determining whether you fall inside the IR35 bracket can be difficult as there any many grey areas within the definitions set out by the legislation. Previously it was at the discretion of the individual(s) to decide their employment status and work out their tax accordingly. However, as of April 2017 changes are being made to IR35 which will affect how this distinction is decided.
As of 6th April, it will become compulsory for the client to make the decision as to who falls within IR35. Tax and national insurance will no longer be submitted by the individual but deducted from their pay much like an employee on a PAYE scheme.
At the moment, these changes are only planned for the public sector; affecting the NHS especially, where thousands of locum doctors and nurses make up the 1.3 million + staff-force currently working today.
This new level of responsibility placed upon the NHS means new levels of risk, with many hospitals and trusts taking the stance that most, if not all medical professions fall under IR35. The basis for this decision is found upon 3 key criteria set out by HMRC: supervision, direction and control. As it is believed that all medical staff will be subject to these criteria, a blanket ruling will be applied.
Those working as locums are advised to submit any outstanding timesheets and make any necessary provisions by the end of March to avoid issues when the changes take place in April.
If you are a locum or contract worker and you are not sure if IR35 applies to you there are many helpful websites and tools you can use.
HMRC has launch a new online service called the ‘Employment Status Service’ which aims to help determine whether you fall inside or out of IR35. Through a series of online questions, the system will ascertain from your answers where you stand. This service however is still in beta testing and we would advice only using it as a guideline at this stage.
Alternatively, if you would like to talk to someone, you can contact one of our friendly consultants who are more than happy to help.
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