The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Lynne Gowers on 13th June 2017
NHS Improvement has revised its position on IR35 and will now allow trusts to determine IR35 status on a case-by-case basis, after admitting that its original stance was “not accurate”.
From 6th April 2017, public sector contractors providing their services through limited companies can no longer determine the IR35 status of their contract. This decision now falls to the public sector body they are working for.
At the end of March 2017, before the changes to IR35 rules in the public sector came in, NHS Improvement (the body responsible for regulating NHS trusts and providers) informed all its locum and agency staff that they would be subject to PAYE and caught by IR35 if off payroll.
This risk-averse approach was widely predicted. With thousands of contracts to assess, the NHS had resolved that the only way to ensure compliance with the new rules was to apply a blanket decision – deeming all engagements caught by IR35.
However the words “reasonable care” were jettisoned into the final legislation, obliging public sector bodies to exercise reasonable care when determining IR35 status, making blanket IR35 decisions effectively illegal.
Faced with this legal threat, and the loss of countless workers to the private sector, NHS Improvement was forced to perform a u-turn which came in a memo issued to providers. They must now “correctly assess the worker contract” and the worker’s “individual circumstances” in a “fact-specific way”.
In the guidance, the regulator warns that “failure to comply with the updated legislation in relation to IR35, and correctly assess the worker contract…could result in providers being liable to pay the equivalent PAYE deductions to HMRC.”
CEO of IR35 advisory Qdos Contractor Seb Maley said that “going forward assessing contractors on a case-by-case basis will prevent them (limited company contractors in the NHS) all being tarred with the same brush, and will only go to benefit the NHS and hopefully set a marker down for every public sector organisation.”
If you are a limited company director in the NHS and were determined as caught by IR35 under the blanket decision, you may have taken the hit in your take home pay or been forced to move to an umbrella company.
The new guidance states that the application of the IR35 rules “must be conducted fairly, accurately and take into account all relevant factors, including representations which may be provided by the individual. It also points individuals and providers towards HMRC’s Employment Status Service Tool.
Boox CEO Colin Gunnell said: “The NHS u-turn on IR35 is good news for limited company directors who were caught by the blanket decision as it allows their circumstances to be reviewed individually and as the legislation designed. Of course, this u-turn does not guarantee a change of IR35 status but should provide reassurance that personal service company directors are being treated on an individual basis.”
So what happens if you ask for your IR35 status to be reconsidered and your NHS contract is subsequently deemed to be outside of IR35?
Firstly your client needs to inform the fee-payer, which may be your agency, of your revised status.
If you have continued to operate as a limited company then it’s business as usual, except you will no longer be deemed as employed for tax and NI and therefore no longer subject to “deemed payments”.
If you have moved to an umbrella company or onto NHS payroll and want to switch back to your limited company, it is straight-forward to do so and we can help with this. Even if you have started the process of closing your company, this takes 3 months and so can easily be reversed if you act quickly.
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