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Trusts should assess agency staff on case-by-case basis over new tax rules

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The regulator NHS Improvement has pulled back from a blanket approach to new tax rules for bank, agency and locum staff, telling trusts to apply assessments on a “case-by-case basis”.

The change of stance is set out in updated guidelines on the new tax rules, known as IR35, which have been sent to trusts today by NHS Improvement.

“Trusts should not assume that all agency staff will fall inside IR35”

NHS Improvement spokeswoman

The guidance update comes almost two months after the IR35 rules came into place and followed complaints by agency staff over the blanket approach previously advocated by the regulator.

NHS Improvement chief executive Jim Mackey had written to trusts in February telling them that he expected “all locum, agency and bank staff” would come under the new IR35 tax rules from 1 April.

IR35 meant switching temporary NHS staff to “pay as you earn” (PAYE) and was intended to shift responsibility for paying tax and national insurance for self-employed workers to their employers.

However, switching to PAYE meant significant reductions in income for some agency staff.

Many agency staff previously supplied their services to the NHS via personal service companies, which allowed them to legally limit their tax liability by drawing income from their company profits.

HMRC defended the rules saying the government believed all staff should be paying the right amounts of tax similar to employed staff.

But agency staff argued they did not have the same protections as employed workers and have to cover their own pension, sickness and holiday pay costs.

“Assessment of whether or not IR35 applies should be carried out in a fact-specific way”

NHS Improvement guidance

Today’s move means the regulator has reversed its previous advice that trusts should apply a blanket approach to the new tax rules and, instead, recommends case-by-case assessment.

In its update, NHS Improvement acknowledged that it had been wrong to say all agency staff should be under the new rules.

It said: “We anticipated that providers would need to ensure that all locum, agency and bank staff were subject to PAYE and on payroll for the new financial year. This was not accurate.

“The introduction of the rules has made clear that an assessment of whether or not IR35 applies should be carried out in a fact-specific way; that is, it should be applied on a case-by-case basis, rather than by a broader classification of roles,” it stated.

“Therefore, NHS providers, and all others categorised as public authorities, will need to consider whether or not an individual in their particular situation is self-employed when they determine the application of the IR35 rules in that case,” said the guidance update.

“This consideration must be conducted fairly, accurately and take into account all relevant factors, including representations which may be provided by the individual,” it added.

Jim Mackey

Jim Mackey

Jim Mackey

The regulator also highlighted the existence of a new government tool to help trusts assess if an agency or bank worker should be subject to PAYE and warned trusts they might be liable for any unpaid tax.

“We expect all providers to comply in full with their legal obligations by ensuring that all locum, agency and bank staff are taxed appropriately following a proper analysis of their individual circumstances,” it said.

“Failure to comply with the updated legislation in relation to IR35, and correctly assess the worker contract and/or notify the third-party agency of determination, could result in providers being liable to pay the equivalent PAYE deductions to HMRC,” it warned.

NHS Improvement did, however, say that it recognised today’s rule changes had “substantial administrative implications” for NHS providers.

A spokeswoman for the regulator said: “Our priority is to help encourage NHS providers to ensure that agency staff pay the correct tax.

“Today we have published updated guidance on the IR35 rules, which amends our previous guidance to trusts and ensures that there is no ambiguity in what trusts are expected to do,” she said.

“Trusts should not assume that all agency staff will fall inside IR35; they need to assess whether or not the IR35 rules apply on a case by case basis,” she noted.

At the end of March, the regulator suspended the introduction of another new rule preventing permanent NHS staff from doing agency shifts at other health service providers.

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