The above phrase is striking fear into the hearts of locum GPs and practice managers.
IR35 is tax legislation that is designed to combat tax avoidance by any worker, such as a GP locum, supplying their services to practices via an intermediary, such as your own limit company, but who would be an employee if the intermediary was not used. Such workers are called 'disguised employees' by Her Majesty's Revenue and Customs (HMRC).
First of all let’s discuss what hasn’t changed.
Individual locums who are genuinely ‘standing in the shoes’ of a GP absent due to illness, holiday or other leave are still normally accepted by HMRC as being self-employed, but we cannot guarantee they will continue to do so… so check your contract (see below).
Locums who are an extra pair of hands in a practice on a long-term basis are employed (and always have been – despite GPs who claim otherwise).
The new IR35 rules
GPs who provide services via their own limited company: if they were previously subject to IR35, they will be caught under the new rules and are probably expecting this.
The problem area is those GPs who feel that on balance they were not subject to IR35, where the ‘end user’ (that is the practice) think otherwise. As the practice will be responsible for the decision now, you can expect them to protect themselves and err on the side of the new rules if there is doubt.
HMRC have helpfully provided a ‘tool’ to help determine employment status – and whether the new rules will apply. However, all is not ‘black and white’, there are shades of grey in exactly what some questions/answers mean – and it will need to be looked at contract by contract on the actual facts of the case.
Where a GP locum provides services where the practice want, when they want and where the practice dictates what they want done (and can change their mind during the day if they want), and to the outside world that doctor is employed by the practice – then it is going to be difficult to see how the new rules will not apply.
However, where the locum decides what services they will or won’t provide, and how they provide them – and the patients are fully aware that they are a business providing temporary services to various practices, rather than working directly for the practice – then that will tip the balance towards the new rules not applying.
Where a locum can provide (and pay for) a substitute if they cannot do a session they were contracted for, that is a strong indication of self employment, but difficult to apply in practice unless locums group together and get approved as a group by all the practices they might work for and who are happy to use any one of them.
Where the locum has to ‘correct work’ in their own time without pay, that would indicate self-employment. It is difficult for me, as an accountant, to see how other ‘corrections for bad work’ could apply to a locum? Perhaps if a referral letter has been done to the wrong person, it would need to be corrected in own time?
Note that the rules apply for each separate engagement – so you could find that for Practice A the terms of agreement are such that the new rules apply – whereas for Practice B they don’t.
To protect yourself, complete HMRC status tool for each contract (or each contract where there are different terms) to check that the status is correct. Keep a copy of the print out showing what answers you have provided – and head it up to show which contract you are considering in supplying the answers. If the practice comes to a different opinion, then discuss the terms of the contract with them and amend if necessary, to ensure you are both understanding it in the same way. Make sure the contract terms and the reality actually match.
What is the effect if the new IR35 intermediary legislation rules do apply to your company?
The practice will need to deduct tax and NIC as if the GP locum were a direct employee – and this income would be treated as ‘taxed’ within the company – so that amounts drawn up to that level would not be taxed again. It will certainly make the accounts more complicated and the net amount available will be reduced.
If the new rules apply to all contracts and the contracts cannot be amended going forward so they don’t, then consideration should be given as to whether the company is still worthwhile. Without the company such contracts would be short-term employment contracts – which the practice may not want, but which may be less practical hassle for them than applying the new rules through their payroll.
Note that under IR35 you were permitted a 5% expenses deduction before having to treat the income as deemed salary; under Public Sector rules you do not get this deduction.
Where the practice are going to have to make deductions in this way, they will no doubt take into account the employer element of deductions in negotiating what they are prepared to pay.
So in summary
- If you are currently self-employed – make sure your contracts are such that the status tool gives you a self-employed answer and you should not have a problem.
- If you currently have a company for which IR35 is in operation: the payer will deduct tax/NIC instead of you and it will be more than you will have been deducting
- If you currently have a company where you do not believe IR35 is in point: carefully review contracts to see if you ensure outside IR35. Where you are genuinely running a business, at your own risk, providing the service, rather than you personally – with the company responsible for delivering the contracted service and putting anything right at its own cost, with patients understanding that you are a separate business helping the practice out, it should not apply. But your contracts must reflect reality.
- If the contract is more akin to a short-term employment, then you will have to accept that the new Public Sector rules will apply to you and you will end up with less in hand than you are used to.
Remember that it is the practice who make the decision not you, so be prepared to negotiate the terms of your work for each and every contract.
Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact her at firstname.lastname@example.org.