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ir35

Find out how the IR35 rules affect locum agency workers.

If you are currently working in the public sector, you will already be aware of the off-payroll working rules that were brought into force in April 2017, also known as IR35.

On 6 April 2021, the UK government will be extending these rules to include any medium to large businesses in the private sector. So, if you currently work in the private sector or are considering future work in the private sector, you may be affected by these changes. 

What is IR35?

IR35 legislation, which is also referred to as the off-payroll working rules, is a set of rules about preventing disguised remuneration. It is designed to make sure that anyone who works as an employee, but through an intermediary; their own Personal Service Company (PSC) or Limited Company, pays broadly the same income tax and National Insurance as those candidates who are employed directly.

What is a small business exemption?

HMRC has given a concession to small businesses in the private sector who will be exempt from this legislation. Generally, a company will qualify as a small company where two of the following are satisfied: -

  • Annual turnover – not more than £10.2 million
  • Balance sheet total – not more than £5.1 million
  • Number of employees – not more than 50

What has changed and why?

IR35 was introduced by HMRC in 2000 to tackle the problem of contractors working via their PSC to gain a tax advantage. To ensure greater compliance, they have changed where the responsibility for applying these rules sit, from the intermediary to the end hirer.

Who decides if a worker falls in scope of the IR35 rules?

The decision on whether IR35 applies to the working arrangement will sit with the client where the work is being conducted. It is, therefore, not up to the intermediary worker to provide evidence of whether IR35 applies, but rather it is the end hirer who is responsible for determining your IR35 status and ensuring that you are paid and taxed correctly based upon their assessment of your employment status.

If IR35 applies, how is that decision made?

There are a set of specific rules in the IR35 legislation that the public sector body or private sector will apply when making this decision. In simple terms, IR35 requires them to assess whether your relationship is genuinely independent, or more like employment.

Therefore, they are responsible for reviewing every contract with reasonable care. After doing so they must provide a Status Determination Statement (SDS) that clearly states the decision they have made and the reasons behind it. 

Who does this impact if the rules are deemed to apply?

The IR35 rules impact any public or private sector agency worker who is not currently paid via PAYE.

This change affects you if you are being paid through any of the following arrangements:

  • You work through your own personal service company (PSC)
  • You work through an intermediary for an umbrella company
  • You are paid gross as a self-employed worker

Who is the Fee Payer?

If you are inside IR35 then your fee payer is the party above your PSC who is responsible for deducting tax and National Insurance.

For the majority on contractors, the fee payer is normally a recruitment agency. However, if your PSC is paid directly by the end hirer then they will be the fee payer and they would be responsible for deducting tax and National Insurance contributions.

What happens if these rules are deemed to apply?

NHS Trusts, Health Boards and private sector clients are responsible for informing locum agencies and workers if their role falls inside or outside of IR35 legislation. Being inside IR35 will impact the way in which you are taxed. The fee payer, which is the last entity to make payment to the worker, is responsible for the deduction of the relevant tax and National Insurance. The deductions are withheld from payment to the intermediary and paid over to HMRC on their behalf (this is not the same as PAYE). 

Sources: HMRC, IPSE

IR35 Resources

We have collated a list of useful resources and webpages which provide more guidance about the IR35 legislation.


HMRC guidance: Understanding off-payroll working (IR35)HRMC guidance: Off-payroll working in the public sector: changes to the intermediaries legislation (22 August 2019, updated 18 May 2021)

Understanding off-payroll working (IR35)


HRMC guidance: April 2021 changes to off payroll working for intermediaries and contractors (published 22 August 2019, updated 14 January 2021)

April 2021 changes


HMRC employment status tool (published 2 March 2017, updated 4 May 2021)

Check employment status for tax


HMRC guidance: off-payroll working in the public sector (published 3 February 2017, updated 6 April 2021)

Public sector off-payroll working for clients


HMRC guidance: find out if IR35 applies to you (published 22 August 2019, updated 18 May 2021)

Understanding off-payroll working (IR35)


HMRC helpline

Off-payroll working (IR35) enquiries

Frequently Asked Questions

Still got some questions? Read our FAQ's to learn more about ir35 for agency healthcare workers.

What is a personal service company?

A personal service company (PSC) or Limited Company is a term first used by HMRC following the introduction of IR35 in April 2000. Although there is no clear legal definition of what exactly constitutes a PSC, in most freelancing circles it is widely regarded as the following:

  • A UK-registered limited company.
  • The contractor acts as director of the company.
  • The contractor is the sole shareholder (sometimes split 50/50 with their spouse).
  • The contractor manages and controls the company's bank account.
  • The contractor supplies professional services to agencies/clients via the PSC.
What is an umbrella company?

An umbrella company is a company that acts as an employer to agency contractors who work under a fixed-term contract assignment. Using an umbrella is the main alternative to setting up your own limited company.

They serve as an intermediary between the contractor and their client (either an employer or an agency), with their principal responsibility of arranging payment for your work.

Can I still work for the NHS and/or private sector?

The simple answer to this question is YES! These are changes to tax legislation and do not place any restriction on your ability to work for any employer.

Do I need to start working for an umbrella company?

There is no obligation on you to move to an umbrella company as a result of IR35. You need to seek advice on which payment model works best for you and provides you with the optimal outcome.

I've seen a reduction in my pay, what is the benefit of staying with an agency?

Working through an agency will still secure you a better rate, preferable working arrangements and the flexibility you might desire.

How does working for multiple agencies affect IR35?

You can still work for multiple agencies as this has no impact on IR35. The question of whether IR35 applies to a working arrangement is viewed on a contract by contract basis. Each engagement is viewed independently so IR35 only applies to any specific contract it is deemed to apply.

Taxes and National Insurance contributions are also only deducted for the specific contract they are deemed to apply to.

Also remember that at year-end, HMRC will take a holistic view at the time of submission of your tax return, so if there are any under- or overpaid taxes they will be settled at that time.

What if I am ‘outside IR35’ but get taxed as though I am ‘inside IR35’ regulations? What should I do?

If you are not deemed to work ‘within IR35’, no taxes should be deducted and if any taxes are deducted you should take it up with the party paying your fee.

However, the determination of whether IR35 applies is solely up to the public or private sector body (NHS Trust, Health Board or private client) into which you contract. If you disagree with the decision they have arrived at, you can appeal the outcome with the client.

Based on the guidance notes to the relevant legislation, it seems as though they will make the deductions of tax and National Insurance contributions and you will have to claim it back from HMRC and make the relevant representations directly to HMRC.

I have used the online self-assessment tool provided by HMRC and I believe I am outside of IR35. How do I approach the client with this information?

The IR35 decision that the NHS Trust or private client makes is independent of your own representations. If they deem the role to fall within IR35 and advertises it as such, you will either have to accept or decline the role.

If you wish to appeal the decision it is likely that they may state that in order to evidence that you fall outside of IR35, you will need to show that you have successfully reclaimed the taxes from HMRC.

I am planning to do some out of hours GP sessions through my limited company. Will tax and National Insurance be taken off at source?

If the role you are taking up is determined to fall within scope by the public or private sector body you are contracting into, then the relevant tax and National Insurance contributions will be deducted at source.

Will IR35 be considered retrospectively?

It is up to HMRC whether they would want to take a retrospective view of your tax position. They can do this regardless of any changes relating to who is making the IR35 decision.

I work for the NHS and I'm paid via PAYE. Will the new IR35 legislation apply to me if I take on locum doctor jobs through an agency?

If you are paid through PAYE, then the legislation does not apply to you as your taxes are already being deducted at source.

I have recently switched from a permanent position in the NHS to working locum roles through an agency. I am currently paid via PAYE and wanted to know if my roles would come under IR35 before I set up a limited company or work via an umbrella company?

You would need to confirm this with your placement officer who should be able to inform you of the IR35 status attached to the role you are looking at. You will however need to speak to your accountant about the best way of working.

I often take assignments away from home when there is nothing close by and I pay for accommodation and travel. How does IR35 affect this?

This depends on how you are contracting (PAYE, limited company or umbrella). You need to have a conversation with your accountant or the party who is paying you about which expenses are deductible and how this works in practice.

I am a practice manager and sometimes use locum GPs via an agency and pay the agency, not the GP. Does IR35 apply in this case?

It needs to be very clear that where the employer is a public or private sector body it needs to determine the IR35 status attached to every role regardless of whether the candidate works through an agency.

If it is a NHS or private practice, the practice should let the agency know whether IR35 applies. The understanding is that the candidate still supplies their labour so the rules will apply.

Can I still claim mileage and other expenses through my limited company as my income is taxed at source under IR35?

It depends on what you are claiming that mileage for. If it is for daily travel to work and you are working inside IR35 then you might find it more difficult to claim these expenses.

The view HMRC takes is that regular/daily travel to work should not be a deductible expense as regular PAYE employees cannot claim this for tax relief either. You need to speak to your accountant on which expenses are deductible.

What if I don’t follow the IR35 rules?

It is simply not a case of you having a choice of complying with the IR35 rules. If your role is deemed to fall within IR35 by the ultimate public or private sector hirers then the relevant taxes and National Insurance contributions will be deducted.

Who can I contact if I have any questions?

If you are a Medacs Healthcare candidate, you can get in touch with your placement officer.

Is this being promoted by agencies so that everyone can work for umbrella companies?

No, these rules are compulsory for the public and private sector. The determination for whether IR35 applies rests with all NHS Trusts, Health Boards and Private clients and they all apply these rules as set out by HMRC.

Am I affected if I work through an agency?

These changes will impact on any worker that ultimately engages with the public or private sector who is not currently paid via PAYE. This is the case regardless of whether you work through an agency or through NHS direct engagement.

I was considering starting up my own limited company, what does this mean for me now?

You will need to consult with your accountant on what this means for you as they will be best placed to explain how this tax legislation will impact on your position and which method of working provides you with the optimal outcome.

Most agency nurses I have spoken to are looking at working as a limited company, so I assume that this route is acceptable?

Working as a limited company is a route that some nurses currently choose to work through. It does need to be noted that this specific route is the one that is the most impacted by the changes in legislation.

Do I need to go back to working permanently with the NHS?

There is no onus on you to work permanently with the NHS. You are still able to work in the locum market in the private sector. There continues to be a demand for locum workers in the NHS.

How can I make sure I am IR35 compliant?

It is not up to you to make any representations about whether your intermediary is IR35 compliant. This decision rests with the public or private body (NHS Trust, Health Board or Private client) which needs to determine whether your engagement falls within or outside of the rules relating to IR35.

What is MSC legislation and does it apply to me?

MSC legislation is for Managed Service Companies and should not apply to you.

I have a full-time job with an NHS hospital and I work as an agency nurse on the side via my limited company. What is the point of having a limited company if HMRC is going to treat my engagement as an agency nurse as PAYE?

IR35 will impact you where your role is deemed to fall within IR35. You can still be paid via your limited company, which is separate to your PAYE earnings. HMRC will deduct taxes at source for these earnings if they are deemed to be within IR35. You should still have the benefit of the holiday pay proportion being paid out to you on your earnings through the limited company.

If I do nursing shifts in private hospitals and nursing homes, will I still fall under IR35?

The legislation around IR35 dates back to April 2000. What has changed, is from 6th April 2021 medium to large companies in the private sector also have a responsibility for making the assessment. 

I have my limited company and I work as a locum doctor through Medacs Healthcare. Does IR35 apply to me and what options are available?

The decision on whether IR35 applies to your role rests with the NHS Trust, Health Board or private client where your work is conducted. If IR35 is deemed to apply to you, then you will be informed as such.

What happens to the employees of the limited company?

There will be no change as they will remain employees of the limited company.

Do we need to close our limited companies?

You may still wish to continue contracting through your limited company but this is up to you to decide.

Will we be paid directly from the NHS Trusts?

This depends on how you currently contract. If you contract through a scheme of Direct Engagement then you will be paid directly by the NHS Trust. If you contract through an agency and they charge the NHS Trust then you will be paid by the agency.

Why am I required to pay two sets of National Insurance contributions – my National Insurance and employer's National Insurance?

In cases of limited company or umbrella contracts, the public or private employer has historically included the employer’s National Insurance portion in your total rate. This is due to the fact that they assumed that your “true employer” is your intermediary and that the intermediary would pay over those employer’s contributions to HMRC when it pays your salary (assuming all income was treated as employment income).

The difference is that under the new rules, the taxes and National Insurance is deducted at source, meaning the party actually paying you will need to make these deductions on your behalf. This is why PAYE candidates are unaffected, as they have always been taxed at source and had the National Insurance deducted at this point.

I understand that I can no longer claim transport costs however, do you have any idea about the implications for claiming course, GMC and insurance fees? These amounts add up quite substantially, so whether I remain as a limited company depends very much on whether they are tax-deductible.

You need to have a conversation with your accountant about what you can reclaim and when you can do so. 

If I continue with my limited company, can I still work for other agencies and can I still claim for expenses?

You are able to work for multiple employers and through multiple agencies. Your IR35 status is determined for each contract you undertake but there is no limitation set on where you can work and who can place you into that role. In terms of claiming for your expenses, your accountant is best placed to discuss which expenses are allowable.

I am currently working as a locum consultant. Does IR35 affect consultants who are doing unsupervised work?

The determination for whether IR35 applies rests with the hospital. Supervision alone is not a key determinant in the IR35 status. You need to look at your situation in relation to all the relevant rules that apply.

Find out more

If you have any further questions regarding IR35, please speak to your dedicated contact at Medacs Healthcare.

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