What is IR35 and Why Should You Care?

Most Pharmacists who locum full time or even part time will know the importance of having a good accountant who can stay on top of all the legal stuff when it comes to tax so they can be as tax efficient as possible. While it is important that we all submit our tax returns on time how many of us know of even heard of IR35?

As a contracting or “locum” pharmacist you have benefitted from various employment arrangements with the pharmacy you worked for. Be it a small single independent, the large multiples or anything else in between.

The arrangements you have benefitted from include self-employed or “sole-trader” locum pharmacists status to working via an umbrella company or limited company, set-up by you the Pharmacist or a group of Pharmacists, which is often the most tax efficient way if you work as a locum.

IR35 – What is it?

In essence it is an anti-avoidance tax legislation to prevent significant gain from an employment relationship whereby a locum receives payments from an employer through an intermediary such as their own limited company, however if they could be paid directly then they would be employees of the Pharmacy and would be bound to the same PAYE (Pay as you earn) tax regulations as normal employees of a company, such that tax and NI is deducted at source as part of the monthly payroll.

Changes to IR35 and impacts on public the sector

Prior to the financial year 17/18 it was the responsibility of the intermediary (e.g. the limited company) to assess if the locum is bound by IR35, and then to apply the tax and NI accordingly. It is now the responsibility of the employing organisation (the independent or multiples) to assess if the employee/engaged entity is bound by IR35 and if this is the case then deduct tax and NI at source – prior to paying the limited company.

IR35 has been in existence since 2000, and the criteria has not changed, therefore nothing should change from a taxation point of view, unless the limited company and employees accounts have been falsely declared as not bound by IR35.

IR35 changes have only impacted on public sector authorities; this has in turn had an impact on locums working for NHS commissioners and provider bodies (such as NHS England and hospital providers) However private entities commissioned by the NHS, whom then commission/contract limited companies, are unaffected.

Impacts on Locum or Contractor Pharmacists

There are currently no changes or impacts on Locum Pharmacists working via a limited company for non NHS provider (Hospital) authorities as you are currently employed for services by a private sector authority/entity and only Public sector authorities have been impacted by changes in IR35 legislation.

Also, as long as you continue to ensure a contract for services is in place with your engaging organisation then you remain a self-employed individual who is able to operate as a limited company and not bound by IR35 legislation.

There is concern that the Chancellor is considering changing the way the IR35 tax legislation works in the private sector, however at present only a consultation has been announced, and again it will be a consultation to challenge non-compliance or those falsely declaring themselves as not bound by IR35 legislature. The consultation is set to be published sometime in 2018. For now, the advice from an accountant to you guys is to continue as you are. Speak to your accountant to ensure you are fully aware of the prosed changes and when it is likely to happen and await the findings of the consultation, to be released later in 2018.

It must be noted although the impact of IR35 changes in the public sector has led to increased compliance; it has on occasion led to organisations having to increase basic rates of pay to some locums.

Once the consultation has been released, we will provide further information on how you can prepare yourself should the worse-case situation arise; and possibly negate the impacts of IR35 by ensuring you don’t wind up in a contract that is bound by IR35 legislation. Watch this space…

Abdul Khalid ACMA CGMA

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