IR35, or ‘intermediaries legislation’, is anti-tax avoidance legislation which aims to stop self-employed workers hiding behind an intermediary, such as a limited company, in order to pay less tax than if paid directly by their client/employer.
For GPs working in the NHS through an intermediary, it is now the responsibility of the NHS provider (the client) to decide whether IR35 applies to the GP and if so, to deduct tax and national insurance at source. Previously, it was the responsibility of the intermediary itself to do this.
There has been a lot of confusion over how these new rules should be applied, who they apply to, and even what they mean. Below, I will attempt to answer some of the more common queries.
Does IR35 apply to GPs registered as sole traders?
No. IR35 only applies when the worker is engaged via an intermediary. IR35 looks at the relationship between the worker and the client. If, in the absence of the intermediary, the worker would be considered an employee or office holder (eg: Director) of the client for tax purposes, then IR35 applies and tax and national insurance must be deducted at source, with the net amount remaining, rather than gross amount, paid to the intermediary.
Why have I been told it does?
I have encountered many providers, doctors and agents wrongly saying that sole traders come under IR35. This seems to be because under IR35, the worker’s employment status is tested in broadly the same way as a sole trader’s, using HMRC guidance, leading some to incorrectly assume the new rules apply to both groups.
Rules regarding the testing of sole traders have not changed. It has always been the responsibility of the employer to assess the employment status of any worker they engage, and tax them appropriately if needed. If an employer does now change the status of workers they have been engaging as sole traders for some time, they could be seen to be effectively admitting they have previously assessed the worker incorrectly. This could have consequences for any historical tax investigation, as well as for workers who may be entitled to statutory employment rights.
If I am deemed employed for tax purposes, do I have statutory employment rights?
It depends. Employment status for tax purposes and employment status for purposes of statutory employment rights are different legal entities; your tax status does not necessarily confer employment rights. Also, a ‘worker’ is not the same as an ‘employee’. You may be considered employed for tax purposes, but be considered a worker rather than an employee. If so, you are only be entitled to limited rights, such as paid holiday, mandatory rest breaks, and safe working limits.
If you are an employee, you are entitled to extended rights such as sick pay, protection from unfair dismissal, redundancy pay, paid maternity leave, notice periods etc.
If you feel you are being unfairly classed as a worker when you should be an employee, then you can challenge the decision through an Employment Tribunal.
What if I work through an agency?
The new rules for IR35 place the responsibility for assessing tax status on the client, or the agency if there is one. If you work for a provider via an agency, it is the agency and not the provider who is responsible for determining employment status for tax purposes and applying the correct tax and national insurance if necessary.
Should I change my rates in light of the changes?
That depends. Some providers have been paying a lower gross rate in order to absorb the extra cost of the employer national insurance they are obliged to pay. However, doing this simply deflects the provider’s own tax liability onto the worker, as employer national insurance should be borne by the employer, not the worker.
Each worker is different, and it is always sensible to seek the advice of an accountant as to whether you should increase your rates to offset the loss in income. Also, if you are not happy with the rate being offered, or the rights you would enjoy, then you may of course consider whether you wish to engage the provider at all.
How can I check if the IR35 changes apply to me?
You will need to take the changes into consideration if you are working through a limited company and the client is a public sector body. The BMA has written guidance on this as well as guidance on employment status.
The HMRC has a tool for assessing both the employment status of sole traders, and those working through intermediaries and will ask you whether you are working as a sole trader or via an intermediary.
No guidance is exhaustive, however. I would suggest anyone in doubt of how to apply these changes seek the advice of a tax specialist.
Dr Matt Mayer is a portfolio GP in south England, Buckinghamshire and Oxfordshire GPC representative, and GPC Sessional Subcommittee executive member. He is also Chair of the grassroots pressure group GP Survival