You may be aware of the changes to the Off-Payroll Regulations, known as IR35, that come into effect in April 2021. The changes will have a significant impact on the way in which locums and contractors are paid and taxed.
From April 6th 2021 HMRC is changing the off-payroll rules (IR35) if you are a client receiving services from a worker through their intermediary (i.e. locums working through their own Ltd Companies or PSC's).
What will be changing?
Put simply the responsibility to assess whether a locum and/or contractor is inside or outside of IR35, and consequently whether PAYE and NIC deductions must be made before paying the locum and/or contractor, will transfer to the end user (known as the “client”)
“Clients” will be penalised by HMRC if they do not follow the new rules correctly. HMRC will undertake routine audits of “clients” to monitor compliance with the law. And clients will be penalised by HMRC if they do not follow the new rules correctly. The client will hold the liability for tax and national insurance contributions.
Who do the rules apply to?
From April 2021 medium and large-sized private sector clients need to apply them. The private sector includes third sector organisations, such as some charities.
The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:
• they have an annual turnover of more than £10.2 million
• they have a balance sheet total of more than £5.1 million
• they have more than 50 employees
This is in line with the small companies’ regime. Therefore a large percentage of practices in the UK, certainly all of the larger veterinary groups, will fall into this category.
What do clients need to do?
They need to decide the employment status of a worker, they must do this for every contract agreed with an agency or worker.
They then need to:
• pass the determination and the reasons for the determination to the worker and the person or organisation they contract with (i.e. the Agency)
• make sure they keep detailed records of the employment status determinations, including the reasons for the determination and fees paid
• have processes in place to deal with any disagreements that arise from the determination
If the off-payroll working rules apply, they will need to deduct and pay tax and National Insurance contributions to HMRC.
Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.
What are clients going to do about this?
This is still a grey area and the larger groups are handling it differently. For example from January 2nd 2021, IVC have stated that you will no longer be able to work with them via a limited company or as a sole trader. The PDSA will be following suit as of the 6th April. Other groups have yet to confirm their exact positioning and we will continue to update this website as we get more information.
However, tests that have been conducted by some companies have established that the majority of their locums fall outside of the IR35 regulations and the results have told them that they fail IR35. as such, a number of companies have already decided
to implement a blanked ban on the use of Ltd Company Locums including Vets Now and we expect many will follow.
What does this mean for Ltd Company locums?
From April 2021, if you still wish to locum through one of the companies who have implemented blanket bans you will need to be paid through an approved umbrella company whereby the umbrella company will be responsible for deducting PAYE and employer and employee NICs.
If you wish to still locum through your Ltd Company, you will need to locum through a 'small company' which falls outside of the legislation. Call us to discuss questions you have.