Simplified IR35 Guidance for Workers – SNC Q&A
*This is not financial advice and Servoca Nursing & Care are not financial advisors. Please seek independent financial advice.
What is IR35?
The IR35 Rules were introduced in April 2000, they were changed in 2017 for the public sector (NHS, local councils, central government etc.) and HMRC have decided to change the rules for the private sector (including care homes and nursing homes). The changes will apply from 6th April 2020, if you work through a Limited Company rather than on a pay-as-you-earn (PAYE) payroll.
IR35 deals with workers that the government considers “disguised employees” i.e. workers who HMRC feel would be taxed as PAYE employees if the Limited Company did not exist. As a result, the individual’s pay should be subject to PAYE tax and National Insurance Contributions (NICs), and Employers’ National Insurance Contributions (ENIC).
Who will the IR35 changes affect?
HMRC’s changes will affect all Limited Company workers in the UK, regardless of sector; IT consultants, doctors, nurses, care workers to name but a few.
Who decides if I am within IR35?
The end client (the nursing or care home), must make a Status Determination on whether the work required on each shift should be “Inside IR35” or “Outside IR35”. In the NHS 100% of the workers for our sister company were judged to be “Inside IR35”; we expect the same to be the case in the private sector. This means that instead of being paid gross, as you would have been as a Limited Company worker, your tax and national insurance will now be deducted by your agency at source.
What happens if I disagree with the client’s IR35 decision?
There will be a way to challenge a decision, which is likely to be clarified by the government later this year, but many clients have already indicated that they will look for PAYE only workers. You should also reflect on the fact that almost all nurses and carers within the NHS have been judged as “Inside IR35”. Bear in mind that clients could be liable for a big tax bill if they get it wrong i.e. paying back tax for every worker, on every shift, in every home if they get it wrong or ignore the legislation – this will soon add up to being a considerable amount. Within the public sector, clients were given 45 days to consider an IR35 appeal, which is a long time for you to be waiting for work.
What are my options if I am currently a Limited Company worker?
Pay-as-you-earn means less administration than managing your Limited Company. If you switch to PAYE your tax and national insurance deductions will be deducted at source, you may not need to pay an accountant, your holiday pay and optional pension scheme will be automatically calculated and added. Your PAYE pay rate may appear lower than your Limited Company rates, however bear in mind that your Ltd rates were gross and you and your accountant then had to deduct the relevant taxes, national insurance, company costs and accountancy fees.
In our view, umbrella companies will not be a viable option for healthcare workers, partly due to the requirement for them to charge an additional 20% VAT and partly because they would still have to deduct the relevant taxes and national insurance payments for HMRC, as well as charging you an accountancy/service fee.
What should I do now?
The IR35 are set to be implemented on 6th April 2020, which means the last week you work under the current private sector rules will be 23rd March, 2020 but bear in mind that your timesheets must be processed before 31st March or any payments after this date will be subject to significant tax deductions, regardless of when the work was undertaken.