IR35: PSCs Not Good for Health

NHS Executives May Face IR35 Investigations

Following a recent investigation and report by Monitor, the health services regulator in England, 86 senior health officials using PSCs could be facing IR35 enquiries, so says the Daily Telegraph.

Monitor’s role is to protect and promote the interests of patients by ensuring that the whole sector works for their benefit. One aspect of this is ensuring NHS foundation trusts are well governed and are meeting requirements designed to safeguard patients and taxpayers. As part of that, Monitor want to make sure that foundation trusts understand and are complying with tax arrangements recommended by the Treasury.

Following a review in May 2012 of the tax arrangements of public sector appointees, the Treasury laid down rules for each public sector body to follow when engaging contractors. These rules require departments to seek assurances about a freelancers IR35 position where they are being paid over £220 per day for more than 6 months and are non-Board level. However, contractors engaged as Board members or with significant financial responsibility must be forced onto the payroll. Only in exceptional temporary circumstances can the requirement for enforced payroll be waived but even then assurances must be sought. Where assurances are not provided then the Treasury rules state that Departments should terminate a freelancer’s contract.

In May of last year, the Health and Social Care Information Centre carried out an initial investigation of how the ‘off-payroll’ rules were being implemented in the NHS and identified 51 NHS foundation trusts that were not fully complying with the Treasury’s recommendations. Amongst its findings were:

• 42 foundation trusts had 65 contractors in senior posts, 3 of whom were chief executives.
• 24 foundation trusts had one or more individual relevant engagements where assurance had been requested but not received, involving 92 individuals.
• 7 foundation trusts had sought assurance about the tax arrangements for less than 20% of their PSC engagements.

Less than a year later those same 51 foundation trusts were followed up to establish whether they had made any progress in improving implementation of the ‘off-payroll’ rules. As a result it was revealed that:

• 21 of the foundation trusts had no outstanding issues.
• All 51 trusts had met the recommendations to seek assurance regarding the tax arrangements of at least 20% of its engagements involving PSCs.
• 20 foundation trusts have one or more engagements where assurance has been requested but not received, involving a total of 86 individuals.
• 23 foundation trusts still have at least one board member or senior member of staff with significant financial responsibility engaged via a PSC. A total of 47 individuals held the following posts:
  – 3 chief executives
  – 4 non-executive directors
  – 15 other executive board members
  – 25 senior officials with significant financial responsibility

Of these 23 trusts, 9 are subject to enforcement action by Monitor. The remainder 14 trusts are still to meet the Treasury’s recommendations fully but all plan to end their contracts with PSCs within the next 6 months by:

• ending a fixed term role
• undertaking a substantive recruitment process
• moving the interim engagement onto payroll
• the return of a permanent employee from sick leave or secondment.

There are a number of reasons that these trusts are more likely to engage very senior members as contractors, such as the need to attract high performing interim staff to carry out effective improvement strategies as well as the difficulty of attracting permanent employees to work at trusts that are perceived to be failing or may even cease to exist in their current form in the foreseeable future, i.e. Heatherwood and Wexham Park, and Mid Staffordshire.

In general, Monitor’s investigation has assured them that NHS foundation trusts know:

• about Treasury recommendations in respect of PSCs;
• that they should comply with the recommendations; and
• that, if they have not yet fully complied, they should do so asap.

Monitor require trusts to publish details of their ‘off-payroll’ engagements annually within their statutory accounts. These disclosures will then be reviewed and if no general improvement is made further action will be considered.

Chief Secretary to the Treasury, Danny Alexander, told the Telegraph, “The rules I brought in two years ago make clear that where people have failed to provide satisfactory assurance of their tax affairs, their details must be passed to HMRC.”

Last week the Land Registry were handed a record fine of £1.03 million for engaging one board member through a PSC for more than 6 months. This followed fines doled out in March of this year to the Department for Environment & Rural Affairs (DEFRA) and the Department for Transport.