Are you prepared for the IR35 changes in April 2021 which may alter the way you can use locums and other roles within your pharmacy team?

05 Mar 2020

Do you know if the new rules apply to you and, if they do, what are your obligations?

Small businesses are exempt from these changes; to be classed as a small business for these purposes you must meet at least two of the following:

  • an annual turnover of less than £10.2 million
  • a balance sheet total of less than £5.1 million
  • less than 50 employees

If you meet these criteria, the new rules will not apply to you. For independent community pharmacy groups larger than specified above, there are requirements you need to consider.

You need to do a review of each individual to see if, for HMRC purposes, they are considered to be an employee, and that would include those who are low paid and work only a few hours, including your cleaners and drivers you use.

If they do, then the onus is now on you to determine the employment status of any self-employed individuals you directly engage through a Personal Services Company (PSC) and those engaged through third parties like agencies. The Chancellor has stated that HMRC will not be heavy-handed applying penalties for non-compliance in the first year of the new off-payroll rules. However the legislation has not been delayed and will still be enforced and employers will still be liable for any underpayment of PAYE.

In the pharmacy sector the changes impacts locums in particular, and the HMRC’s online check doesn’t take into account all the nuances of community pharmacy and requirements for locum cover and being able to use locums who understand how that particular pharmacy operates. At the moment, the HMRC’s online check (CEST) confirms that locums are often employees for tax purposes. This is an ambiguity that the NPA has been demanding clarity from the HMRC on for 18 months, as part of a cross-sector approach along with the CCA. Representation to the HMRC is ongoing and more information will be shared with NPA members as soon as it becomes available. We have also made submissions to the Treasury, House of Lords inquiry and Government review of IR35 on behalf of members. It may help you to use the locum agreement, provided by the NPA, which has previously been approved by the HMRC. This does not absolve you of your obligations under the new legislation.

The tax status of each employee needs to be considered. The HMRC manual can assist you with this or you can take your own specialist tax advice in relation to this. However, to make things more confusing, it is possible for someone to be classed as an employee for tax purposes but not be classed as an employee or worker for employment law rights.

Key information

When do you have to be compliant by?
Businesses who are large enough not to be exempt must apply the new rules to payments made after 5 April 2021. If the locum or contractor’s work with the company falls before 6 April 2021 it is not subject to the new IR35 requirements. If the payment is for work done before 6 April 2021, and the contractor continues to work for the company, then the new IR35 requirements apply to that payment and all future payments.

What are the penalties for non-compliance?
Businesses will not have to pay penalties for inaccuracies in the first year, except in cases of deliberate non-compliance.

How do you determine someone’s employment status?
It can be notoriously difficult to work out whether someone is an employee or a worker. Ultimately, both Employment Tribunals and HMRC can make decisions about employment status, but they may reach different conclusions. Crucially to IR35, it is perfectly possible for someone to be classified as one thing for tax purposes and another for the purpose of key employment law rights. It is therefore important to consider both aspects.

Some key factors when determining employment status include:

  • Level of control – How much say do you, the employer, have over the individual? Do you dictate when and how work must be done?
  • Mutuality of obligation – Is there a duty to offer work and for the individual to carry it out?
  • Personal service – Can someone else step in if they can’t do the work?
  • Integration – Are they part of the organisation?
  • Financial risks – Is there a risk that the individual may lose money if things go wrong?
  • Equipment – Do you provide them with equipment?
  • Remuneration – How are they remunerated? Do they receive a weekly or monthly wage?
  • Taxation – Are they responsible for their own income tax and National Insurance contributions on earnings, or is this your responsibility as the employer?

This is not an exhaustive list. Each factor should not be considered in isolation but as part of the whole picture. NPA Members can consult the NPA Employment Advisory Service for free on 0330 123 0558 or email: employmentadvice@npa.co.uk for support if needed.

 

Three questions to ask when determining employment status

  1. What does the contract say? Tribunals and HMRC are not concerned about labels. Simply stating that the individual is self-employed, for example, is not enough – you will need to look at the terms of the contract.
  2. How does the relationship work in practice? Tribunals and HMRC will also look past contracts to the true nature of your working relationship, so it’s essential to monitor and review your current working arrangements and practices. Does the individual have a regular pattern of work? Are you obliged to provide them with work? Can they refuse work? Are they paying their own National Insurance and tax? Are they under your control and direction? Are they treated like other employees?
  3. Has the relationship changed over time? An individual may do a few odd hours here and there to deal with your pharmacy’s needs. However, as time progresses, they may start doing increased regular hours each week. If this happens, the nature of the relationship has changed, and this may affect their employment status.

What to do once you have determined your contractors status:

What records do you need to keep to demonstrate compliance?
Once the status of a contracted worker has been determined, you must create a status determination statement (SDS) and share the reasons for that determination with the contracted worker. You must also keep detailed records of contractors and their SDSs, including the reasons for the determination and fees paid. This will involve creating a system to securely maintain these records. You will need to have processes in place to handle any disagreements that arise from their determinations. Such disagreements can be made by the contractor or the company paying the contractor (the agency recruiting and paying the contractor on behalf of the business, for example). There is no time limit for making such challenges.

What exactly do you need to demonstrate or evidence your determinations to HMRC?
The legislation says ‘reasonable care’ must be taken in making determinations. HMRC has not yet issued guidance as to what this constitutes. However, HMRC advise that using the Check Employment Status For Tax (CEST) tool satisfies this requirement, providing the information entered is accurate and the tool is used in accordance with HMRC’s guidance. An SDS accompanied by the PDF outputted by CEST satisfies the requirement to provide the reasons for the determination with the SDS.

What are the tax implications for members and their employees/locums?
If the locums/employees are deemed to be employees, the responsibility for paying PAYE and NIC will fall to the member. You should withhold PAYE and National Insurance Contribution as if the locum were an employee. Further advice can be received from the NPA Employment Advisory Service on 0330 123 0558 on how to move from a locum contract to an employment contract if required, or in cases of dispute.

Are there any National Insurance Contribution (NI) implications?
Yes, if the locum is deemed to be an employee, the member will be liable for Employers’ NI as it would be for other employees.

Will I have to make any changes to their internal systems, for example, payroll software?
No, but a locum may need to be paid through payroll software going forward if they are deemed to be an employee and not paid off-payroll.

If a locum falls within IR35 and is treated as an employee for tax purposes, will they be entitled to benefits that employees are entitled to?
You should review the individual’s rights and benefits in accordance to their employment status, and this may mean their entitlement will change. If in any doubt, further advice can be received from the NPA Employment Advisory Service on 0330 123 0558.

Additional Information

  • https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm4270
  • https://www.gov.uk/employment-status/selfemployed-contractor
  • https://www.sage.com/en-gb/blog/ir35-changes-prepare-your-business/#IR35-anchor-link
  • https://www.gov.uk/guidance/check-employment-status-for-tax
  • https://www.gov.uk/government/news/government-to-help-businesses-with-off-payroll-working-rules

When dealing with employment status, it’s always safest to seek professional advice. For experienced support, contact the NPA Employment Advisory Service on 0330 123 0558 or email employmentadvice@npa.co.uk