For agency nurses and locum doctors, attempting to decipher the rules surrounding IR35 can be confusing. And when your primary concerns are tending to those in your care, the last thing you need to worry about is a run-in with Her Majesty’s Revenue and Customs (HMRC) regarding your IR35 status.
On 6 April 2021, the UK government will be extending the IR35 rules to include the private sector. To make your IR35 status clear, we have created a simple, helpful guide.
Being ‘inside IR35’ means that, for tax purposes, you are deemed to effectively work for your end client in the same way as a permanent employee and are therefore subject to PAYE.
Operating inside IR35 generally means that your employer (this could be an umbrella company or recruitment agency) deducts the appropriate taxes and National Insurance contributions from your wage ‘at source’, which means before it reaches your bank account.
If you are operating inside IR35, you must ensure that you are paying the appropriate taxes over the course of a financial year. This may include paying a deemed payment (e.g. higher taxes) at the end of the tax year.
If your employment situation changes throughout the course of a financial year, your IR35 status must be reassessed.
Being ‘outside IR35’ means that you are deemed to be operating more independently than a permanent employee would. This means that, through your limited company (also known as a personal service company), you are responsible for managing your own taxes. In addition, you will be able to pay your own salary and draw the remainder of your income as dividends.
Determining whether you are inside or outside IR35 comes down to how the contract between your limited company or umbrella company and the end client is perceived. It is not determined by your payment structure.
However, determining whether you are inside or outside IR35 is not down to you.
Up until April 2017, it was up to the individual worker to decide whether they were inside or outside IR35. However, IR35 legislation then changed.
From 6 April 2021, the 'off-payroll' rules have been extended to include the private sector.
Now, following the introduction of new rules for ‘off-payroll’ workers, the call for public or private sector workers rests solely with the public or private body for whom the work is carried out.
For example, if an agency nurse or locum doctor works in an NHS hospital, it falls to the NHS Trust in charge of that hospital to determine whether that healthcare professional is inside or outside IR35.
End clients have been known to provide HMRC with incorrect information regarding their employee’s IR35 status. Whilst these cases are rare, it is advisable to have your contract independently reviewed for IR35 compliance.
Alternatively, you can use the ‘Check Employment Status for Tax’ (CEST) tool.
The IR35 legislation is only applicable if you are working through a limited company. Where the umbrella company pays your limited company, the IR35 legislation applies and if you are inside, the umbrella should deduct tax and National Insurance.
Where you are paid directly by an umbrella, you are an employee of that umbrella and IR35 does not apply. The umbrella will deduct the relevant tax and National Insurance from you as an employee.
An IR35 enquiry is a case brought forward by HMRC and occurs when a worker is found to be wrongfully claiming to be outside IR35 when, in fact, they are inside IR35. HMRC will pursue the guilty party in an effort to recoup lost income tax and National Insurance contributions. Additional interest and a potential penalty fee may also be deemed payable. For those found culpable, these charges can often stretch to tens of thousands of pounds.
By now, you should be a little clearer on your IR35 status. However, if you still have any questions regarding your status, please contact our Finance Compliance team via email or call +44 (0) 1756 702 226 and select option 1.
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