NHS deems its entire PSC workforce inside IR35

The dozens of PSC contractors who will quit working at a London hospital before next Thursday look like a precursor to a much bigger exodus of such workers from the health service.

In fact, despite warnings that 85% of PSCs will quit if decided inside IR35 by their client from April 6th, the NHS has told its entire PSC workforce that it will be caught by the new legislation.

In an email seen by ContractorUK, NHS Improvement says “all” locum and agency staff will be “subject to PAYE and on payroll” from early April, just before the 'off-payroll' rules bite on the 6th.

While that heads off its HR staff having to apply the off-payroll rules (because any off-payroll staff will have quit or be on-payroll by the 6th), the NHS may still be stung by the framework.

This is because last week’s published legislation to enforce the rules stipulates that “reasonable care” must be taken when engagers come to assess the IR35 status of PSCs.

‘Potential HMRC repercussions for the NHS’

Due to this new two-word addition in Finance Bill 2017, simple blanket or across-the-board assessments of PSCs -- such as the one the NHS has carried out -- are prohibited.

IR35 advisory Qdos, a specialist on the new legislation, therefore believes that by telling all its PSCs that they are in scope, the NHS “potentially” faces repercussions from HMRC.

But the advisory would be “surprised” if the NHS is not aware of this risk because on top of the prospect of tax penalties, trusts may be additionally burdened by becoming ‘fee-payers.’

The IR35 specialist said: “The next party in the contractual chain (i.e. the agency) can ask the engager to provide an explanation as to why a certain determination has been made.

“If the engager [the NHS in this case], doesn't respond within 31 days, they could become the ‘fee-payer’, and therefore responsible for deductions and paying Employers NIC.”

‘Not one for us’

But given the opportunity to comment yesterday, the NHS did not seem to demonstrate a good awareness of the legislation or the risks to the health service that it seems to pose.

Told that blanket assessing status is at odds with taking ‘reasonable care’ to assess status individually, a NHS Improvement spokeswoman said it was a matter for HMRC.

“The off-payroll working changes were introduced by HMRC, who will be able to comment on the legislation and rules for public bodies,” said the spokeswoman, adding “this isn’t one for us.”

Seb Maley, chief executive of Qdos, corrected: “It is up to the engager to determine contractors’ IR35 status.

“[Yes,] HMRC have issued the guidance, but it’s up to the public sector body as to how they interpret and apply the new rules.”

One person familiar with the off-payroll rules suggested that the spokeswoman might have erred or misunderstood the question ContractorUK asked.

‘HMRC to treat all PSCs as inside IR35’

However, in the NHS email stating that all agency staff and locums must be pay-rolled by April 1st, the same deference to HMRC is presented.

Sent to “all NHS provider CEOs,” the email claims: “HMRC will treat all public sector ‘self-employed’ contractors using a PSC as falling under IR35 and therefore treated for tax purposes as an employee.”

But they won’t. HMRC’s guidance to PSCs makes clear: “When you are considering a contract for providing your services to a public authority client, they [the public authority client] will decide whether the off-payroll working legislation should apply.”


In other words, it is the for the contractor’s client (the body engaging the PSC) to decide if the rules apply, so “HMRC themselves will not be telling clients what to do,” Mr Maley said.

Nonetheless, “that the NHS plans to place all contractors they engage inside IR35 is concerning”, he added.

“IR35 is a complex issue, and status varies [from] contractor to contractor. So a one-size-fits-all, or blanket approach to setting the employment status of thousands of NHS locums and contractors really isn’t wise.”

One of those locums was last night preparing to quit her post with the NHS, as a direct result of the across-the-board status assessment.

“My contracts [as a speech therapist locum] are always ‘outside’ IR35 [but now] we’re having blanket ‘inside’ IR35 status pushed onto us.

“It costs me over £900 a month in expenses to do this job, which means it will no longer be viable for me… and longer-term locums are leaving [too],” she said.

‘Leaving the UK altogether’

Yet rather than just the blanket assessments backfiring on the NHS, by affected workers simply quitting their roles, the locum implied the entire plan could backfire on the exchequer.

“I’m putting my house up for sale and will be leaving the UK altogether.

“That's one less worker in the taxman’s purse,” she said. “It's not only IT staff who are important [to the health service]; what a mess the NHS is going to end up in.”

Editor's Note: Related --

Contractors' Questions: What to make of NHS's blanket IR35 decision?

HMRC puts its own IT contractors inside IR35

Agencies slash PSCs' pay rates, insist on umbrellas

Consultancy moves to ban PSCs over IR35 change

Why 1,796 defunct PSCs may be just the start

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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