What is a contractor?
Contractors provide services to a client and bill that client for those services. The client pays the contractor and the Contractor is responsible for their own Tax and NI Contributions.
What are the rules on IR35?
Legislation was passed in April 2017 which meant that for those working in the public sector many categories of contractors were deemed to be employees rather than being self-employed. This meant clients were responsible for assessing contractor status and for ensuring that where contractors were deemed employees then the necessary Employers National Insurance contributions were made.
What prompted the changes?
The changes have come about following government suspicion that contractors are getting away with paying a lot less tax than they should be. In the 2018 budget, the chancellor announced from April 2020 the IR35 legislation will be extended for large and medium sized private businesses as well. It was confirmed this legislation will be implemented as per the 2020 Budget presented by Rishi Sunak.
Small companies will not be subject to this legislation. So if you are a Locum working for this type of business, you are not subject to the new IR35 rules.
Definition of a small company :
During a 12-month period, a business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria:
- Turnover – not more than £10.2 million
- Balance sheet total – not more than £5.1 million
- Number of employees – no more than 50
How do I know if I am a contractor and subject to the IR35 legislation?
If an optical practice engages professionally qualified Locums (either OO’s or DO’s or CLO’s) very sporadically to help with holiday or sickness cover for owners/employees, then fees can be paid to the Locums without deduction of tax by the practice. Effectively in this case there is no mutuality of obligation (“moo”) which there would be with an employee.
Having no M.O.O means that the practice doesn’t have to offer work to the Locum and the Locum doesn’t have to accept it.
You can check via the HMRC website – Checking Employment Status for Tax; https://www.gov.uk/guidance/check-employment-status-for-tax
Each contractor is considered on a ‘case by case’ basis so clients wishing to contract the services of a locum will need to ensure they have evidence they have checked the employment status of that locum.
Some of the main IR35 Criteria
A variety of criteria are used to make the assessment such as what the worker’s duties are, are there potential substitutes available, does the contract require and helpers, what are the work arrangements, does the contractor rely on one company, what are their financial risks etc
Options for locums
The onus is now on the Locum running a Personal Service Companies (PSC) to decide whether all of their PSC income should have PAYE applied to it. They will hopefully have a contract with the practice which provides evidence that there is no M.O.O and that the practice doesn’t control the Locums services amongst a host of other checks.
It is expected that most locums will be asked to go on the payroll of a company if they fall under IR35 rules. But there are other options:
- We advise not to rely entirely on HMRC’s employment status checker, as it does not take into account all potential factors. Talk to a specialist and conduct a detailed IR35 review of your existing contract. Contact us at AEL for further information regarding this.
- If you can prove you do not work solely for one employer hence, have multiple sources of income, you will be seen as a ‘normal trading company/sole trader’.
- Request a ‘confirmation of arrangements’ letter from your current employer(s), outlining the detailed nature of your contract. This will help in case of an IR35 investigation. The document will provide information to show you do not work under the direction of your employer, as well as your right to provide for a substitute.
- Keep adequate records to prove you fall outside the IR35 legislation; e.g. proof you have booked your own holiday without need of prior approval by the employer.
- Take out tax investigation insurance to be safe.
If you require any further guidance or assistance, help with tax investigation insurance or an IR35 review. Please contact AEL Markhams via phone or drop us an email.
