Tax Guide for Healthcare Professionals

Employers are known as “engagers” in the legislation on “off-payroll working”. These are people in the public healthcare sector who recruit people, either directly or through an agency: say, dentists, GPs, consultants, locums, surgeons, physiotherapists, or for other specialist and non-specialist roles in the National Health Service. Engagers should make sure they know the rules that guide “off-payroll” working (which cane into force on 6 April 2017), at least as well as the workers whose tax status it affects.

All engagers in the public service sector, in fact, should be as clear about IR35/ intermediaries’ legislation and off-payroll rules as the contractors who work in this sector need to be. The “off payroll” rules mean that responsibility to determine the status of the person being engaged (to determine whether employed or self-employed) now lies with the “engager”. It does not mean, however, that a blanket approach can be taken, so that suddenly all contractors are automatically deemed “employed” and put through payroll.

How to determine status

The Guidance from HMRC to engagers is “You have to use the facts of each contract or engagement to decide if IR35 applies, and not any label, description, or job title.” The italicization/bold “facts” is mine for emphasis. Clearly the statement definitely does not indicate that all contracts should be ignored and that the engager should automatically assume the person being engaged should be taxed at source.

Below are the three main rules to determine IR35 status:

A. Control: a worker is not an employee unless there is a right to exercise control over them. This could be a right to control what work is done, where or when it is done, or how it is done.

B. Right of substitution, the worker is at liberty to hire a substitute or assistant to do the job: personal service is an essential element of an employment contract. Can the worker hire someone else to provide substantial help?

C. Mutuality of obligation: there should be various mutual obligations set out within the contract. The obligation to perform and to be paid would form part of any contract — but there should be no obligation to offer or to accept future work and no restrictions on having multiple contracts.

The right of substitution is the major factor, if the contract includes the clause about substitution then it is unlikely that the contractor could be seen as an employee and therefore should not be immediately put through payroll. As the media reported recently, NHS suppliers sent out a “blanket” letter to all contractors to inform them that if they work within the NHS they will be “subject to PAYE and on payroll remuneration” as of April/May.

But as you can see, this is simply incorrect, HMRC’s guidance should be noted, and all contracts must be checked on an individual basis.

The NHS is probably no more risk-averse than other public sector engagers. Thus it appears to us on the outside that the “blanket approach” being taken within the public sector is simply to guard against getting caught out and penalised for not following the off-payroll rules. However, care should be taken on two counts: first that it may be only a matter of time before someone in the Treasury, Government, or HMRC points out that engagers in the NHS are breaking the rules by using the “blanket” approach; and second, that the exodus of contractors leaving public service contracting could seriously hurt the sector, affecting courts, schools, hospitals, councils, etc. It is time to apply the rule in a more delicate and thoughtful manner.

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