What does IR35 mean for private sector nurses and care home workers?

Emma Platt, Director of WR Health, one of the country’s foremost healthcare recruiters, discusses how the new IR35 tax regulations will impact the healthcare sector

Many nurses and care home workers are currently facing uncertainty over how their pay packets will be impacted by new tax legislation due to come into effect in April 2020. If you are currently working in the private sector, will you be affected by the changes?

The new rules mean that changes to off-payroll working, commonly referred to as IR35, which were introduced in the public sector in April 2017, will be extended to medium and large companies in the private sector. In just a matter of weeks, businesses engaging independent workers will become responsible for setting the tax status of these individuals. As part of this reform, the tax liability will also transfer from the contractor to the fee-paying party in the supply chain, which is typically the recruiter or the company that directly engages the individual.

This means that if you are currently working for a ‘medium or large’ private company as an agency nurse or agency healthcare worker, and being paid through a personal services companies (PSC), your employment status for tax purposes will now be decided by the business you are working for.

Following the introduction of new off-payroll working rules in the public sector in April 2017, it was reported that that locum nurses saw their net income slashed by roughly a third after blanket IR35 assessments made it impossible for NHS workers to secure outside-IR35 status. As a result, the Independent Health Professionals Association (IHPA) reported ever-worsening staffing problems, which the body believes is posing a serious danger to patient safety.

While it is yet to be seen whether private hospitals and care homes will take such an overzealous approach to making status determinations, one thing is certain: it pays to know where you stand.

For self-employed nurses and care home workers operating through personal services companies, here’s what you need to know.

IR35 and health & social care: What is it?

It is essentially an attempt by the government to crack down on the avoidance of employment tax by freelance workers who work through PSCs, but in reality are working the same way as a permanent employee. These contractors might be paying tax and national insurance as if they are ‘self-employed’ but should be paying as if they are ‘employed’.

Tax status

To figure out whether health and social care workers fall inside IR35, they have to be categorised by HMRC as ‘employed’ or ‘self-employed’. This is determined by various factors such as the nature of their work, or the degree of control they have over what work they do and how they do it.

This means that nurses may not always be seen as ‘self-employed’ if they work through a PSC. However, if you are not deemed to work ‘within IR35’, no additional taxes should be deducted. We recommend that all nurses and carers read government guidelines and seek advice to correctly determine their own employment status.

Here are some of the various scenarios health and social care workers face and the IR35 implications that will go with them:

Working in a large or medium sized company

From April 2020, it will be the responsibility of the end user (e.g. the care home) to determine your employment tax status if they are part of a large or medium sized company. ‘Large or medium sized applies’ to businesses with more than 50 employees and more than £10.2M of revenue – meaning most care homes which are part of a larger organisation will fall into this category.

Working as a PSC

If you are currently working through a PSC but the care home or hospital you are working for determines that you are employed for tax purposes, you will need to pay your own tax and National Insurance out of your received pay as if you are a PAYE worker. If you are working through a PSC and the care home determines you are self-employed, you will be paid as normal, but the fee-payer will need to report any payments to HMRC.

Working as a PAYE employee

If you are working as a PAYE worker, you will continue to be paid as normal.

Working in a small home

After the April 2020 rollout, the responsibility for determining the tax status will still remain with the individual workers.

Seek the right partner

While the vast majority of health and social care workers will not be impacted by the extension of IR35 rules into the private sector, it is crucial that those who are not PAYE employees check where they stand. A good recruitment partner will be able to advise their candidates on how to understand the implications of the legislation, and whether the changes will impact them.