What are the IR35 tax changes?
In brief, from 6 April the responsibility for making IR35 status decisions transferred from the individual operating as self-employed or through a personal service company (PSC), to the public sector body that they work for.
The responsibility for making the necessary deductions becomes that of the fee payer – that is, the body paying the company or individual providing the service. They are now responsible for taking tax and national insurance off the fees before they are paid. The effect of the legislation is to remove all the benefits that were achieved by operating as either self-employed or through a PSC, by paying them as if they were an employee.
At the same time, the public sector body will also become liable for paying the 13.8% Class 1 employers national insurance contributions in the same way they do for regular employees.
What prompted the changes?
The changes have come following government suspicion that PSC’s have been getting away with paying a lot less tax than they should be.
How will optometrists be affected?
Locum optometrists working in private practice will remain unaffected. However, those working for the NHS will receive significantly less income than they did previously.
In one case, we’ve seen a situation where the public sector body is looking to keep its hourly costs the same rate as before these changes came into effect, so they are passing on the Class 1 employers national insurance contribution to the PSC as well. In effect, the individual is now seeing 20% income tax, 12% employee national insurance AND 13.8% employers national insurance deducted from their fees before they receive them.
Ultimately locum optometrists working in the public sector will have to decide whether or not they want to continue working for that public sector body or find other work. If their only source of income is from public sector work, then the benefit of operating as a locum, either as an individual or through a PSC would dissipate. There would be little point in continuing to operate in this way as they would continue to have all the costs associated with it and none of the benefits. To compound the issue, there would also be none of the benefits of being an employee either, such as holiday pay, sick pay, benefits schemes, pension schemes etc.
At this stage, it’s really just a case of keeping an eye out for any changes that might come in after the election. It could be up in the air depending on who wins and there may be a further roll out of the changes but at the moment it’s just affecting those working for public sector organisations.
For further information, contact David Davies of TWD Accountants on 0161 480 5665.