Two months after IR35 reforms and it’s still chaos

It’s been a little over 2 months since one of the largest and probably the most unpopular changes facing contractors working in healthcare in the UK was introduced. The government altered IR35 tax legislation to include locum and agency staff who work for a public body or recruitment agency with the aim of raising £185m for 2017/18 by subtracting tax and national insurance from pay packets at source.

HMRC had claimed that they expect 20,000 contractors to be affected by the reforms₁. However, many felt this figure to be on the low side, given that the NHS has a workforce of around 1.4 million₂, including many contractors and locums. Concerns were raised that the HMRC had hugely underestimated the number of contractors that might stop working in the public sector forever, if placed inside IR35.With talk of many contractors planning on leaving the public sector entirely should they be placed inside IR35, it was clearly a time for clarity not confusion.

However, many contractors are still in the dark as to when and how they will be deemed inside IR35. Initially, NHS Improvement, the Health Service regulator, advised providers that many contractors, agency and locum healthcare staff were caught by IR35 and should be placed on the payroll. However, they have now backtracked on this blanket decision and have accepted that this approach was wrong. However, for some the damage has already been done, with one London hospital losing up to 30 contractors₃ since the changes were implemented.

A NHS Improvement spokesman said: “We have published updated guidance – ‘Working through intermediaries: IR35 update’ on the IR35 rules, which amends our previous guidance to trusts. Trusts should not assume that all agency staff will fall inside IR35; they need to assess whether or not the IR35 rules apply on a case by case basis”.

This case by case assessment requirement is one of the biggest changes of the new rules. It requires the public sector organisation or recruitment agency that provides the contactor to become responsible for ensuring that workers pay the correct tax. For staffing agencies, this mean becoming well-versed in IR35 and accurately assessing whether each candidate on their books falls under IR35 and potentially becoming responsible for deducting tax and national insurance. This has created major administration costs and has once again hit margins and still many fear that they are not meeting the demands of the reporting and regulations requirements. It is vital that an agency has a clear strategy in place to manage these important changes and many are finding it beneficial to outsource the burden to an expert partner.

IMS People are specialist providers of Offshore Accounting Services and offer a comprehensive range of accounting support services to recruitment agencies. Our team of qualified accountants can take up the burden of your IR 35 requirements along with the regular invoicing and payrolling services, allowing your team to focus on increasing margins and revenue. Ultimately, it’s about cutting your level of risk, and providing your contractors with a wealth of expertise to help manage their finances and obligations.

To know how IMS People can support your Accounting team, feel free to contact us on info@imspeople.com or call us on +44 203 478 5937

References:
https://www.recruitment-international.co.uk/blog/2017/04/95-percent-of-contractors-predict-public-sector-suffering-as-i35-reform-lands
http://www.nhs.uk/NHSEngland/thenhs/about/Pages/overview.aspx
http://www.contractoruk.co /news/0012910pscs_abandon_nhs_it_project_over_ir35_changes.html

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