back to article NHS U-turns on blanket IR35 tax crackdown

The UK National Health Service has repealed its blanket decision to shove contractors inside the IR35 tax clampdown by default. Last month the government shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. The Treasury says it hopes to raise £ …

Anonymous Coward

What I don't understand is the comment in other press that locums could lose 30~50% of their income if they were brought under IR35. So if they were treated and taxed as employees.

How can they lose that much income if they are paying the correct amount of tax already? Unless they are running through massive expenses and offshoring profits then a loss of that much could only mean their current tax liability was artificially low?

I know there are some tax incentives to keep yourself within a company structure but 30~50% seems extraordinary for a locum.

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You retain profits within the company, because you want to use it for some capital project later.

IR35 says you can't. Unlike big companies. IR35 is effectively tax on turnover.

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It allows you to change the timing of payments. Corporation tax is a flat rate. If I have a really good year, I pay the CT on the full amount, but don't draw more than basic tax rate. In a bad year, I draw more than the company earns.

The real saving is in National Insurance - the tax that dare not speak its name. Government's own fault for raising it so much over the last 20 years - mostly Gordon Brown.

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Anonymous Coward

"How can they lose that much income if they are paying the correct amount of tax already?"

They could have a wife (or husband if female) as a fellow company director and be splitting the dividends and pay across 2 tax allowances...

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Re: husband-and-wife payments

That kind of income-splitting is explicitly forbidden under S660a; this is separate from IR35.

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Permies need not comment

To all permies, you don't understand contracting hence why you're all still permies, make nonsense comments and are proud to pay tax to a bankrupt state. Can't believe how many permies think paying tax is a "great thing"? I remember when avoiding tax was called smart - take note permies, tax avoidance is legal and tax evasion is illegal.

I'm a contractor and I get paid XYZ quid a day more than a permie because:

* I don't want holiday pay

* I don't want "employee rights"

* I don't want staff appraisals and other HR sh*te

* I don't want anything to do with HR Depts

* I don't want free gym membership

* I don't want sick pay

* I don't want BUPA or "dental plans"

* I don't want 'notice periods'

* I don't want a payroll dept dealing with my pay

* I don't want the Xmas party

* I don't want "salary reviews"

* I don't want season train ticket loans

* I don't want "pension" plans

* I don't want to work when someone tells me I have to work

What a lot of you permies don't seem to understand is that 95% of the above is an EXPENSE for your company and so they don't pay tax on those things which you permies call "benefits". How come it's OK for your company to play the game but not OK for contractors to do the same thing?

As a contractor, I have none of the above because I have exchanged all that in favour of money and a bit more, due to 'risk'. And you nut-job PAYE permie slaves want me to pay the same tax as you? Do one!

Whay do I want:

* I want money and want control over payroll and how much I pay this bankrupt state

* I want to work when I want to work

* I want to say "b*ll*cks" and walk when permies make my life difficult

The above three points, permies, is called: FREEDOM

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Anonymous Coward

Re: husband-and-wife payments

Yes and no.

The house of Lords threw out the Artic case becasue the shares 'Given' to a spouse falls outside of S660!

So husband-and-wife payments are perfectly LEGAL.

Do your reserch before making a statment like that.

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Told you so. There were only 3 possible results:

a) Crapper lower quality contractors taking government jobs, b) Good contractors hiking rates to compensate, and c) a climb-down once the impact of a) and b) became widespread.

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Anonymous Coward

Re: husband-and-wife payments

"That kind of income-splitting is explicitly forbidden under S660a"

Not if a) they are a spouse or b) they do some work for the company.

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"b) Good contractors hiking rates to compensate"

Or just hiking to a better gig.

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Anonymous Coward

Re: Permies need not comment

Well said. Don't forget that the previous yer all expenses have to be forked out of the net pay for umbrella contractors without a limited company. This basically doubles your expenses cost, and to increase pay to cover you will usually be put up into the higher tax bracket. This means any extra work you do will be taxed at 40% immediately. I'm taking home about 30% of the money paid by my public sector end client to have me there. The system is screwed! Greedy chancellor is taking money from the wrong people, Greedy chancellors end up getting less.

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"I know there are some tax incentives to keep yourself within a company structure but 30~50% seems extraordinary for a locum."

If you are travelling to a location, or paying secondary rent to work in a location, then that would now be paid for out of your taxable income f if you were seen as an employee. I suspect. So if you earn 100K, and you are paying full rate on half of that and your accomodation charges are also now on top of that, I can see that adding up.

I think. Maybe. Possibly.

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50% is a bit high. As a PSC you can pretty much avoid paying NI. Which is a few % you lose.

Theres also lots of tax deductible expenses but when I was working down in Southampton and previously Windsor that pretty much added up to about £1000 a month (accomodation, travel, subsistence, etc) - but that was money I wouldn't have had to spend if I wasn't working there and if I went cards in I would expect the employer to pick that up.

I would also expect the employer to then pick up my liability insurance, I could get rid of my accountant, I would expect paid holidays, pension contributions, etc, etc - depending on what rate I was then paid I might actually be better off!!

Though I would assume I would get a lower rate in return for all that. As I would then be on a lower rate I am guessing I would then be paying less tax (I think I paid about £30k in tax last year) so how this works out as a gain for the government I am not sure. Particularly as if its a Public Sector contract its the government that are giving you the money to pay the tax with in the first place.

BAFFLED!!

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Anonymous Coward

Locums don't rent accommodation to work at a different place. They are brought in for a day or a few days to cover staff shortages. In either case the ability to claim back costs for accommodation would be the same whether employed or not. There would be no overall advantage to renting another place on top of your own place.

Travelling to a location would also be allowed as a business expense, the same for both. Travelling from home to a workplace is not allowed to be claimed for either person, even if your limited company is registered at your home address. So for Locums they wouldn't be able to claim back this cost anyway.

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So for Locums they wouldn't be able to claim back this cost anyway.

Yes Locums can. Provided you spend no more than 40% of your time at any one location.

You can't rent though - has to be hotel or equivalent. Only MPs get to have a 2nd house on expenses.

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Boffin

As a PSC you can pretty much avoid paying NI.

Which is a few % you lose.

A few? At 12% Employee and 13.8% Employer - nearly 26%, although the rates do reduce the higher your pay, and are offset by reduced Corporation Tax on reduced profit.

Even "permies" don't realise how big and how stealthy a tax National Insurance actually is - Basic rate tax is technically 32%, higher rate 52%

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Locums and PFI

Locums don't rent accommodation to work at a different place. They are brought in for a day or a few days to cover staff shortages.

A lot of locums are brought in to cover pregnancy-leave/queue-bust/job-advertise-interview-cycle/... and can be at one place for a few months. Often this will not be commutable (especially for specialists), if, as employees, they cannot recover: travel, hotel/b&b, cost of eating out, then they will be considerably worse off.

This is a case of government labeling hard working, medium earning locums as people sponging off the NHS because it is a cheap way of shifting the spotlight of NHS funding blame away from politicians.

The NHS would be much, much better off if the trusts had not been forced into very expensive PFI contracts. This was initially a fudge brought in by John Major to cook the books so that government borrowing could be seen to be lower; the cost was to boot the debt repayment into the future; NOW is the future, this is part of the reason why the NHS (+ schools, etc) are running out of money.

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Anonymous Coward

> Basic rate tax is technically 32%, higher rate 52%

Between 100k and 118k, the rate is 62% as they withdraw the personal allowance. Lovely Labour tax band that isn't even called a tax band.

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Anonymous Coward

"Yes Locums can. Provided you spend no more than 40% of your time at any one location"

No they can't. That is old information.

See https://www.gov.uk/tax-and-chancery-tribunal-decisions/dr-samad-samadian-v-the-commissioners-for-hm-revenue-and-customs-2014-ukut-0013-tcc

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Anonymous Coward

Re: Locums and PFI

"...if, as employees, they cannot recover: travel, hotel/b&b, cost of eating out, then they will be considerably worse off."

They can recover that. Locums can negotiate whatever terms they want and if the requirement is to work away then the hospital would be expected to provide accommodation or reimburse the cost of staying away.

However if you have a long term post (even if less than 24 months) and the location is a permanent one where you travel to daily you may actually be in a worse position with the taxman if trying to claim accommodation costs if your are contracted through your own company/psc.

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Carrying on with the IR35 fiasco

The NHS and others will just engage Crapita (and their ilk) and send it all to India.

After all, all the call centre jobs will be there. I guess to some beancounter somewhere having the development teams in Mumbai/Bangalore/Chennai/Kolkata/Pune/etc will save them money, shed loads of money that will go towards their end of year bonuses.

What could go wrong eh?

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Re: Carrying on with the IR35 fiasco

I don't live in UK anymore but still have recruiters emailing.

The UK is not somewhere you would go to work (even as a born and bred Yorkshire man) if you have experienced literally anywhere else. Jobs in central London make me laugh the most "we'll give you mediocre money and ignore travel costs/chaos or ridiculous rent"... Ok UK keep killing the industry with political stupidity and devisive "they're not paying enough tax" daily hate stories. Lol

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WTF?

Re: Carrying on with the IR35 fiasco

So, when can we expect a list of options to press when dialing 999?

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Anonymous Coward

Re: Carrying on with the IR35 fiasco

Just after you have keyed in your credit card number.

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Anything to do with mass contractor walkouts?

Yes. We nearly lost a *lot* of very good contract staff due to this. Very hasty new arrangements were made but some couldn't transition so we lost them.

Not quite chaos but certainly harmful.

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Bah!

The problem is that the NHS thought Locums would want to be brought in under the ruling because of previous experience some years ago with British Rail Locums in which popularity increased in direct correlation with numbers opting in.

Their thinking was that once the whole thing got enough of a head of steam it would become a Locum motive.

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WTF?

Puzzled as usual

So the contractor is treated as employed and put on payroll.

This means that tax and NI are deducted at source including employers NI.

[I am assuming the following, but this is the puzzle.]

Contractor also gets holiday and sick pay and other benefits such as pension contributions.

In this case what is the benefit in using a company to handle the income?

Surely the sane option is to mothball the company and become an employee.

Thus moving from a charge on the current accouting year to a long term liability for all the overheads required to feed and water employees. Presumably this does not look good in the long term accounts.

In for 2 years and you are more difficult to sack, as well.

Head count goes up, long term liabilities go up, flexibility in staffing goes down.

Trying to push patients into the private sector where these constraints don't apply?

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Re: Puzzled as usual

Its the employment status that is at issue here

According to IR 35 your taxed as an employee, but you get none of the benefits

No paid holiday

No job security

No pension

No training

Employers NI

The unpaid trouble of running a company

Being a unpaid tax collector for HMRC

Paying for an accountant

But that is what the government call tax fareness, I call it being a tax bully.

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This died because most senior hospital managers are snouting IR35 themselves.

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I'm a Locum working for NHS. I expected the agency to stop deducting same taxes after the NHS improvement U-turn on IR35 until after being assessed on a case by case basis. Who can I contact for help.

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