Umbrella companies for nurses, teachers, and doctors
Public sector workers form a key client base for many umbrella companies. Umbrella companies for nurses, teachers, and doctors tend to promise these workers a zero-effort method to increase their income, by being a contractor.
But what is really on offer here? Are umbrella companies as valuable to public sector workers and public sector workers are to umbrella companies?
It all comes down to IR35
IR35 refers to anti-avoidance tax legislation that applies to workers who supply services via an intermediary, such as a limited company or Personal Service Company (PSC) but would otherwise be the same as an employee if the intermediary was not used.
IR35 was devised by the government to combat ‘disguised employment’, where high earners could dramatically cut their income tax bill by working arbitrarily through their own limited company.
If your contract provides the same level of responsibility and control over working conditions as a permanent employee, you would generally be classed as ‘inside IR35’. As per HMRC guidance, these IR35 workers should be treated as PAYE contractors, with income tax and NICs deducted from any payments made to the intermediary.
Put simply, this means your income is taxed before it is paid out, where it is then subject to the limited company’s corporation tax.
Public sector workers used to be able to determine their own IR35 status. However, if they incorrectly judged that they were “outside IR35”, they could then be investigated by HMRC. If their contract was determined to be inside IR35, such investigations could lead to repayments of thousands of pounds in back taxes, with penalties and interest paid on top.
This is relatively uncommon, however, and workers could choose to take out IR35 insurance, just in case an investigation did take place.
To combat this, the IR35 status of contractors in the public sector is now assessed and decided by the employer, such as government departments, local education authorities, and NHS trusts. If the worker is determined to be inside IR35, any agencies that the worker is contracted through should be informed within about 30 days.
If a worker is assessed as eligible for IR35, and the client pays their intermediary directly, the client will need to deduct PAYE income tax and NICs before any payments are made. If the intermediary is paid by a recruitment agency, then the client needs to inform the agency that IR35 rules should apply. As a result, the agency instead becomes responsible for deducting tax and NICs from payments made to the worker. If the agency processes the workers deductions incorrectly they may be financially liable for any outstanding tax or penalties.
If the employer fails to correctly determine a worker’s IR35 status, or fails to inform any agency involved, then they themselves could face financial liability. To avoid such errors, the NHS has issued a blanket decision that all locum or agency doctors and nurses contracted by the NHS are inside IR35, even if an individual worker operates in such a way that they could otherwise be considered as outside IR35.
Following these changes, specialised umbrella companies may seem appealing to NHS workers, especially locum doctors and agency nurses, and other contractors operating inside or outside IR35.
Because an umbrella company acts in the position of your full-time employer, all transactions between your client, agency, and yourself are treated as invoices backed up by submitted timesheets and expense claims. The resulting payments are then processed by the umbrella company to provide a salary with tax and NICs already deducted, as with any employee.
Many doctors and nurses are turning to umbrella companies who can manage all the tax affairs of your contracting without any concerns about IR35 or tax liabilities.
As public sector workers, teachers fall under the same IR35 rules as nurses and doctors. Most short-term supply teacher work is for a short enough duration as to not come under consideration, but longer-term contracts, such as covering a lengthy absence, could bring the risk of IR35 classification.
A growing practice among teacher recruitment agencies is to push the services of umbrella companies onto newly-signed workers. However, some may refuse to consider you unless you are signed with an umbrella company.
You cannot be compelled to sign on with an umbrella company, although bear in mind that recruitment agencies are likewise free to turn you away.
Umbrella companies for nurses, teacher and doctors are now a useful resource for many public sector workers. You can take a look at our complete list of the UK’s top umbrella companies, or browse our extensive list of umbrella company guides and FAQs for further information on the benefits, and costs, that they bring to public sector contractors.