IR35 Guidance

What is IR35?

IR35
IR35 is a law aimed at stopping people avoiding paying their fair share of tax by working through a Limited Company (or Personal Services Company (PSC) or other intermediary).
IR35
IR35 is also known as the Intermediaries Legislation.
IR35
It was introduced in 2000. The responsibility of assessing whether an assignment was "Inside IR35" or "Outside IR35" was that of the individual. If they got it wrong, then they could be liable for any unpaid tax bills and for fines/penalties
IR35
In 2017 the law changed in the public sector and will change again in April 2020 for the private sector - these changes mean that the worker is no longer able to assess whether they are "Inside IR35" or "Outside IR35" - this responsibility now falls on the organisation that requests the worker. If the organisation assesses it incorrectly, or are found to have deliberately misled the taxman (HMRC) then the organisation could become liable for unpaid tax, national insurance and HMRC fines. In a hospital, or large care group, this liability could be huge.

The basic assessment principle is; "Is the work that is being carried out, the same (or mostly the same) as permanent members of staff in the organisation"

In other words, are the workers disguised employees?

In the public sector, almost all nurses and carers have been assessed as being within IR35 and are therefore taxed as employees. We expect that assessments will have the same results in the private sector and therefore all staff will need to move to PAYE.

Within healthcare, we doubt that umbrella companies will be an option, because they are required to charge VAT - NHS hospitals can claim this back, but nursing/private care homes can't; so if they are not paying VAT at the moment, they won't pay an additional 20% costs.

Umbrella v Paye?

PAYE - Pro's & Cons

plus
  • Your pay is transparent and there are no fees.
  • Send your timesheets and get paid - simple!
  • No third party - work directly with the agency and get paid directly by them
minus
  • No third party
  • If you decide to work for numerous agencies, you will need to tell HMRC who your main employer is.
  • Your pay is transparent and there are no fees.

Within healthcare recruitment in the public sector (NHS, councils) agencies may offer you a PAYE rate or an umbrella rate.

In the private sector it is likely you will only be offered a PAYE rate, as care homes would be liable for a 20% VAT charge on umbrella workers, which they couldn't claim back (unlike NHS hospitals).


Why the different pay rates?

All the costs and examples below are estimated, will vary per agency and per worker. You should get your own estimates.


PAYE example [not to be used as your individual example]

For PAYE you will join the agencies payroll and be paid directly into your bank account. Unless you ask the agency to do otherwise, your net pay rate (18.60pounds in this example), would also attract holiday pay of c. 2.25pounds - boosting your hourly rate to 20.85pounds.

The agency and umbrella company has to pay the cost of Employers National Insurance, pension and the apprenticeship levy, which is an employment tax. With an umbrella company, you will find that these "employment costs" are deducted from the headline rate, whereas an agency rate won't have these deducted.

Umbrella Pay Example [you need to get your own example from your chosen umbrella companies]

When you hear the umbrella "rate" is 24.48pounds don't forget this rate still needs to have many of the deductions above taken from it. Your umbrella should be able to give you a full breakdown of their fees, charges and costs.

Worked examples of both are shown on the following pages - but you should always get your own estimates! We are not financial advisors, nor do we give any financial advice! What they show us based on a 10 pounds umbrella fee per week is;

crossway An estimate on net PAYE pay

We used; Money Saving Expert to calculate this and to get this example in February 2019, but your own situation and tax code will be different and there are various PAYE calculators available. You should also bear in mind that the tax rules do change, so get an up-to-date estimate yourselves;


Net Pay is 18.60 pounds (plus holiday)

Based on 18.60 pounds per hour
Tax Code (example); 1185L
Hours worked; 37.5
Total Gross Pay; 698 pounds
Tax free allowance; 228 pounds
Taxable Pay; 469 pounds
Tax Paid; 94 pounds
Employees NI; 64 pounds
Take-home pay 539 pounds
Take home hourly pay; 14.37 pounds
(539 pounds / 37.5)
Holiday Pay per hour; 2.25 pounds
(based on 12.07%)
Take home pay rolled up; 16.62 pounds


crossway An estimate on net umbrella pay

Hours worked; 23
Average hourly rate; 24.48 pounds
Charge to agency = 23 x 24.48 pounds = 563.04 pounds
Umbrella Deductions
Employment Costs (likely to be Employers National Insurance & Pension) = 49.63
The umbrella company's fees / charges (check what and how this works) = 10 pounds
Total amount to be payrolled for the worker = 563.04 pounds - 49.63 pounds - 10 pounds = 503.41 pounds
Tax Code (from HMRC) 1185L
Holiday Pay (set aside to use when needed unless you advise otherwise) = 60.76 pounds
Amount paid at minimum wage (this is often a standard check for umbrella) = 7.83 x 23 hours = 180.09 pounds
Commission (this is often the remainder of your overall pay that is due) = 323.32 pounds
Statutory (HMRC) deductions
Amount subject to HMRC deductions (Minimum wage + commission) = 503.41 pounds
Employee National Insurance Contribution = -40.97 pounds
PAYE Income tax = -55.07 pounds
Take home pay (what you will get in your bank account) = 407.37 pounds
Take home hourly pay (divided by hours worked i.e. 23 in this example) = 17.71 pounds

As highlighted, you should always get your own estimate as everyone's liabilities are different - make sure any umbrella company provides a full breakdown before you sign-up; or join us on PAYE, which we feel is simpler and easier.