With more people choosing to work in a flexible way, the employment status of workers who are contracted directly or via third party service providers – such as pharmacy locums – has become increasingly complex over time.
In 2000 the Government introduced the IR35 regulations – commonly known as off-payroll working rules – to address this variation and bring equity between the amount of tax paid by employed and self-employed workers for doing the same role, in the same conditions.
At the time, IR35 only applied to those working in the public sector, but in 2018 the Chancellor announced reforms to the regulations to increase compliance and bring the private sector into alignment. The plan is that from April 2020, medium and large businesses (companies employing more than 50 people) will become responsible for assigning the tax status of locums to reflect the correct employment status position.
Pharmacy bodies have expressed concern that these reforms will have a significant effect on the flexibility of the pharmacy workforce and disrupt the necessary supply of medicines and services to patients.
In a joint statement, The Company Chemists’ Association (CCA), the National Pharmacy Association (NPA), the Association of Independent Multiple Pharmacies (AIM), the Royal Pharmaceutical Society (RPS), Team Locum and Locate a Locum have called for more clarity and support for community pharmacy.
They have asked HMRC to ensure that the Check Employment Status for Tax tool (CEST), which is being promoted as the means of determining tax status, is fit for purpose, claiming that its one-size-fits-all approach is “not refined enough” to meet the needs of the community pharmacy sector. Describing the IR35 reforms as “complex changes which will be difficult to embed across the diverse populations of workers that exist across the private sector”, the bodies are also calling on HMRC to provide a detailed timetable for rolling out the reforms and “clear, ongoing communications about how to prepare”.
Employed pharmacists pay their tax through salary deductions and the pay as you earn (PAYE) system. Many pharmacy contractors use locums to provide ad hoc cover for the duties of employed pharmacists. Locums may be working ‘off-payroll’, either as self- employed individuals or through personal service companies they’ve set up and, currently, they are responsible for determining the employment status of their engagement.
The April 2020 reform will use the IR35 regulations currently in use in the public sector as a starting point. According to HMRC, this means that employers will be required to make a determination of a worker’s employment status and communicate that determination. In addition, whoever pays the worker will need to make deductions for income tax and NICs and pay any employer NICs.
HMRC says that the Government considers requiring employers to set up such a process would not place “a disproportionate administrative burden” on them, because medium/ large-sized private sector organisations are likely to already have relatively sophisticated HR processes in place either in-house or sub-contracted to relevant service providers for managing workplace disputes. However, when it comes to the impact on the community pharmacy sector, the CCA is concerned that because the majority of businesses do not qualify as ‘small’ – i.e., employing fewer than 50 people – the sector will be disproportionately adversely impacted by these changes.
In their joint statement, the CCA says that while there is an assumption that the reforms will be easier for large businesses to introduce because there will be more sophisticated HR departments and systems, it will be payroll, not HR, that deals with locums and contractors within these organisations: “Essentially, businesses will need to pay workers through accounts software, and this will be complex to calculate and resource intensive to administer. The burden is also likely to be greater for medium sized pharmacies as they may not have the resources or the tools to manage the reforms in the way that HMRC expect. There’s also not enough regard given to the amount of time it will take for businesses to embed these changes.”
A further concern is that there will be workers who fall inside of IR35 and pay the same amount of tax as employees but without access to the same employee rights. The CCA says “this may lead to less people willing to work in the sector as ‘self-employed’ and therefore impact on the flexibility of the workforce. If this flexibility is disrupted significantly, it could impede the necessary supply of medicines and services to patients.”
Liam Byrne, managing director at Team Locum says despite attending many meetings with HMRC to discuss the issues, it’s still unclear exactly what the changes will mean for locums.
We’ve already seen locums leaving to work privately or abroad since IR35 was introduced into the NHS and it’ll have a similar squeeze on private sector employers
“We are not disputing what IR35 is, but what we are asking for is clarity on the status of a locum pharmacist in terms of what is and isn’t acceptable from a self-employed point of view,” says Mr Byrne. “We say HMRC’s basis and definition of a locum is not what we as an industry say it is. Their idea of a locum is a contractor who, for example, fills a position for five or six months and then moves on to another one, which is contrary to how we would define it, as someone who works day-by-day in a different scenario and workplace. When we’ve explained this to them with different scenarios, HMRC says each person’s status would have to be worked out on a case-by- case basis, which for employers – and agencies like us which book thousands of locums a week – has a huge cost in terms of time and money.”
And it’s not just the payers who will suffer. HMRC’s aim is to make tax collection more efficient and standardised but Mr Byrne says this could backfire: “We’ve already seen locums leaving to work privately or abroad since IR35 was introduced into the NHS and it’ll have a similar squeeze on private sector employers. These proposals will add, on average, 25 per cent to the cost of hiring a locum. Locums can’t offset expenses like they would if they were self- employed so will want their rate subsidised. The locum is then paying 12.7 per cent National Insurance rather than class 2 contributions, the employer is paying 13.8 per cent employer’s NI, then there are pension contributions of 5 per cent from the employee and 3 per cent from the company, so the locum walks away with less money, and the client is paying more. This will stifle the industry of locuming and HMRC will get a poorer return from it too.”
HMRC pledged to publish a full summary of responses as soon as possible following the conclusion of the consultation, but as yet nothing has been forthcoming, and Mr Byrne says the current Tory leadership upheaval could cause further delays.
“We are supposed to have the draft of what the alterations to IR35 will look like in September, before the Autumn Statement,” he says, “but the Chancellor has been asked whether he will postpone the IR35 roll out due to a high level of uncertainty and people saying it’s not fit for purpose. If this happens it could mean a year’s delay, but it also seems that both Tory leadership candidates are contemplating if they are going to put IR35 forward. We know Mr Johnson is against it and his policy would be to re-evaluate whether it’s being used, and Mr Hunt may well feel the same, though he has not been as forthcoming.”
Although the fate of IR35 in the private sector remains unclear, it’s still worth preparing for possible implementation.
Siddiqur Rahman, managing director of PharmaSid Ltd, and board member of The Pharmacist Cooperative, says a good place to start is to “speak to your accountant to ensure you are fully aware of the proposed changes”, and suggests following the CCA advice:
In addition, HMRC says affected organisations need to familiarise themselves with the existing legislation at Chapter 10, Part 2 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 www.legislation.gov.uk/ ukpga/2003/1/contents.
In the meantime, Mr Byrne says: “We’ve already seen the impact that IR35 has had on the public sector, and if these proposals roll out in the private sector they will change the face of what locuming is currently about. We hope the whole thing is re-evaluated because there are certainly no locums, clients or agencies who think it is fit for purpose.”