IR35 is Coming: A Guide for Locums
IR35 Legislature is Coming
In light of the global health crisis, locums would be forgiven for allowing IR35 regulations to slip from their mind. Unfortunately, IR35 has never gone away. This legislature was postponed last year but is now scheduled to impact locum healthcare professionals as of April 2021.
What is IR35?
IR35 is government legislation designed to create parity in taxation and national insurance payments and to prevent locums from acting as employees. The biggest impact of IR35 will fall upon locums that invoice hospitals and surgeries for their services under the banner of a limited company.
On paper, IR35 is also designed to protect locums. For example, a private clinic that hires locums exclusively over full-time employees will have their needs met without providing benefits, such as pension contributions or paid holiday.
To ensure further protection, insist on a confirmation of arrangements letter from your employer, which outlines the detailed nature of your contract. This will not only come in handy in case of an IR35 investigation, but also set boundaries with your direct employer, should problems arise. The document will show that you do not work under direction of your employer, as well as your right to provide for a substitute etc. Keeping clear records will also ensure your protection.
All the same, IR35 will change the way some locums approach billing. Locums that bill employers as a limited company will receive payment into a business account. Upon filing a tax return at the end of the year, the locum will pay corporation tax at the flat rate of 17% of gross profit. Also, the locum will pay personal income tax and national insurance contributions on any dividends paid to themselves from this business account.
If the locum claimed less than £12,500 in dividends during the 2020 financial year, they would not be liable for any income tax repayments or national insurance contributions. This means that the total tax due will be 17% of a gross annual salary, not the 20%, 40% or 45% that an employee would have been liable for conducting the same services.
The Impact of IR35 Explained
Employers that hire locums must declare if these temporary employees fall within or outside IR35 regulations. If the locum is declared to work inside IR35, it means the locum must be treated as an employee – but only for tax purposes.
Tax repayments and national insurance contributions will automatically be deducted by an employer upon payment of the locum’s invoices, just as they would a full-time employee. However, this does not entitle the locum to any of the benefits extended to such employees. The locum will not receive paid holiday and sick leave or be eligible to join a pension scheme.
Who Decides if a Locum Falls within IR35 Regulations?
An employer. In the case of locum healthcare professionals, a clinic, hospital or GP practice must decide IR35 status. Write to your employer and explain if you act as a limited company or sole trader. Complete the government’s employment status tool and supply the results as evidence. This will determine whether you fall within the IR35 legislature.
If you fail to do this, your employer may automatically assume that you fall within IR35 legislation. This way, the employer cannot be held liable for any bending of the IR35 rules. If you disagree with an employer’s assessment that you fall within IR35 regulation, seek work elsewhere.
What is Inside IR35 and Outside IR35 Rules?
This table outlines what is inside and outside IR35 regulations. Study this and assert whether your work as a locum is likely to fall within IR35 legislation.
|Outside IR35||Inside IR35|
|Performing one task and one task alone, which is outlined in a contract |
|Performing multiple different tasks for the same employer |
|Drawing up a new contract, or amending an existing agreement for new roles or duties|
|Taking on new, ad hoc work at the request of your employer |
|If you are unable or unwilling to work, somebody else can fulfil your duties |
|Being indispensable to an employer and thus unable to be replaced by a substitute |
|Informing your employer that you are unable to work, taking time off accordingly |
|Requesting time away and having this request denied on grounds of workload |
|Financing independent training and not receiving any company perks |
|Being included in business schemes, such as training and social occasions |
|Eschewing performance reviews and other|
business practices related to employment
|Being assigned performance targets and attending performance reviews |
|Ability to work for other organisations, whether within or outside the health sector |
|Exclusivity to your current employer, forbidding you from working elsewhere |
As you will see, the dividing line is quite clear. Behaving like an employee will fall inside the remit of IR35 and brings about the restrictions associated with this. If you prefer to remain outside IR35, be strict about retaining firm boundaries as a contractor.
What Happens if a Locum Defies IR35 Legislation?
If HMRC has reason to believe that a locum is acting as a “disguised employee”, an audit may be issued. This can be a lengthy, intrusive and stressful process. It can also carry a financial penalty.
If the audit declares that a locum was ignorant of IR35 legislature and defied the regulation through negligence, 30% of any unpaid taxes will be requested. This penalty rises to 70% if the locum knew they fell within IR35 legislature but ignored the protocol, and the full 100% of the locum wilfully attempted to deceive HMRC and hide their IR35 status.
If you have any further queries about how IR35 will impact your work as a locum healthcare professional, investigate our detailed IR35 FAQs page. We also recommend seeking the advice of a tax professional if you are concerned.
Information on how AppLocum will approach IR35 legislation coming soon.
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