IR35 – The impact on locum social workers

Don’t ignore new IR35 legislation coming into force next month, warns tax expert

Published on 27th March 2017

New IR35 legislation coming into force in April is a “quagmire”, a tax expert has warned.

Speaking at Locum Today’s event in Birmingham ‘Futureproofing your social work career,’ Jon Millar urged locum social workers to seek expert advice on their IR35 status ahead of the legislation being introduced next month.

“IR35 was first introduced in 2000 based around the idea of tackling disguised employment,” said Jon Millar, director of ContractingWISE.

“However, in April, the HMRC are introducing a small number of changes which will have a radical impact,” he added.

HMRC are estimating that 26,000 people are wrongly classed as self-employed and should in fact fall inside IR35. The government believes an estimated £500m is therefore due in tax which is not currently being paid. As a result, HMRC are starting to close this gap by targeting the public sector.

Up until now, the onus has been on the employee to ascertain their IR35 status, probably through seeking advice from their accountant or a specialist. However, Millar warns that it is such a “volatile field” that an IR35 status can change quickly based on placements, job roles and the roles of your colleagues.

“There is a common misnomer that it is down to ‘supervision, direction and control,’ – it is infinitely more complex than that,” says Millar. “Critically, the responsibility for defining your IR35 status now sits with the public sector body.”

However, Millar warned, how well does the public sector body know your role, your tasks and compared to your colleagues to make that decision? Yet “with responsibility comes liability” and therefore there is a certain pressure for public sector bodies to get it right or perhaps more worryingly, to ‘pay it safe’ and presume that locums are inside IR35 and therefore, liable for additional tax.

To help, HMRC have introduced an online status tool whereby locums answer several questions to determine their status, although early reports have deemed the tool as “not fit for purpose”.

An additional difficulty to the whole IR35 situation is that if a locum is deemed to be ‘inside’ IR35 rules for their contract, then get a new contract and which is deemed to be ‘outside’ IR35, HMRC may question why it has changed and can investigate retrospectively.

“The ramifications are huge,” said Millar.

  • For recruitment agencies – there is the cost and admin involved.
  • For accountants - sector specialists will struggle as we see a “mass exodus” of locums using PSCs as it is just “a little bit too dangerous”.
  • For Public Sector Bodies – there is the Status Liability and procurement costs

“Plus the labour market may change radically as you introduce all of the ‘employed’ taxes to those who consider themselves self-employed without any of the ‘employed’ benefits,” added Millar.

He highlights that there are choices for locum social workers: going permanent, increasing rates, reducing your income or change your status amongst others.

Millar adds that going forward, when the legislation really bites, the government may be forced into a U-turn but this is very unlikely. However, the industry is united in its opposition to the legislation, he says.

“You need to be educating yourself so you are confident in saying ‘this is what I have been doing to understand my status and I’m confident that HMRC will reach the same conclusion’,” ended Millar. “But whatever you do do, don’t not do anything.”


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