NHS Improvement, the health service regulator has recently released a document to providers entitled ‘Working through intermediaries: IR35 update’.
The document seeks to redress the practice of viewing all contractors as falling inside of IR35 for the purposes of the ‘off-payroll’ rules.
NHS Improvement advised providers of the rule changes and informed that many contractors were caught by IR35 and should be placed on the payroll. They now accept that this was wrong and have sought to remedy their erroneous advice. However, there have already been casualties of the NHS’s previous IR35 diagnosis, with a London hospital losing up to 30 contractors. NHS Improvement has not however revealed the true number of freelancers who deserted them because of their negligent attitude.
Hereon in, NHS providers are to undertake a proper IR35 assessment in a fact-specific way on a case-by-case basis, rather than by a broader classification of roles. This is to be conducted fairly, accurately and take into account all relevant factors, including representations which may be provided by the worker.
Although the document refers to the use of HMRC’s ESS tool it is made clear that this does not negate the necessity for judging each case on its merits.
Whilst NHS Improvement will not provide advice on individual cases, providers are urged to seek independent advice, where appropriate, to resolve issues that may arise.
It is likely that one of the reasons for this change of heart has come about because of the newly introduced s. 61T(6)(c ), Chapter 10, ITEPA 2003 (IR35 off-payroll rules), whereby the operation of PAYE can be passed to an end client who does not take ‘reasonable care’ in assessing a worker’s IR35 status. However, there can be no liability passed to an end client for incorrectly and unreasonably concluding that IR35 applies as there is no tax and NIC to transfer where IR35 does not apply! In these cases, therefore, end clients will be seeking to avoid the burden of having to be accountable for the actual operation of PAYE rather than the fee-payer.
The other point regarding ‘reasonable care’ is that without a proper definition of these two words, it becomes a subjective test and maybe easy for end clients to circumvent. Presumably, it will be similar to the Self Assessment definition for ‘careless’ penalties, where HMRC expect each person to make and preserve sufficient records to enable them to make a correct and complete return. If so, this would require the end client to demonstrate, by reference to some document/record, that they had properly considered a worker’s IR35 status.
With NHS resources already stretched to breaking point, do they really have the time and money to undertake this exercise? It could be less of a headache for them to adopt a policy of only using agency or umbrella staff, with the exception of highly skilled contractors who may not be willing to go down this route.