HM Revenue & Customs (HMRC) has been challenging the status of locums who are registering as self-employed but whose services are being used by GP practices as though they are employees. The key focus of this article is to ensure that there is no dispute over the employment status of your locums.
Historically, it was the locums’ responsibility to ensure their employment status was correct but this has shifted and with effect from 6 April 2017, the responsibility will lie with GP practices.
What do changes to IR35 mean?
From 6 April changes in how IR35 (intermediaries legislation) is applied to off-payroll working in the public sector come into effect. IR35 is the anti-avoidance tax legislation designed to tax those individuals who are working through a limited company, but who should really be deemed as self-employed.
HMRC has released an online tool to help determine the employment status of any individual working in the public sector. The tool will also tell you whether IR35 rules apply to any locums working as a limited company. You can access this here.
From April practices will have to determine whether IR35 applies to any locums working as a limited company. If it does you will need to deduct PAYE and national insurance contributions in the same way as you would for an employee. You will also need to pay any employer's national insurance contrinutions to HMRC on top of this, which will therefore increase the cost of employing the locum.
The changes apply to any payments made on or after 6 April 2017, including any payments made for contracts entered into before that date (even if the work is completed before 6 April 2017).
Is your locum self-employed?
There are various elements involved in ensuring a locum, whether a limited company or not, is self-employed but there are three that are key. Adhering to these would make it difficult for the HMRC to argue these locums are employees of the practice.
1. Providing a substitute
The first is that your locums should be able to provide a substitute. When a GP is self-employed, they are required to provide a service. Should they be unable or unwilling to provide services on a specific day, this service should be able to be undertaken by someone else.
It is the locum’s responsibility to find another locum to provide cover on this day. What is being stressed here is that the locum is not treated like an employee. When an employee is unable to attend work they are not responsible for finding someone to cover this position; the responsibility lies with the employer.
The implication of a locum finding their own substitute suggests there could be a time where a locum unknown to the patients is in attendance. We recommend each practice keeps a list of locums who do not work regularly at the practice and this list is made available to the practice’s regular self-employed locums.
However, for locums working as a limited company there are extra rules around providing a substitute. To avoid being caught by IR35, along with providing a substitute to cover all of the work they would carry out, the locum needs to ensure that this substitute was not interviewed by the practice before they started and is not regularly engaged by the practice.
2. Holiday or sick pay
The second element is that the locum is not entitled to holiday or sick pay. HMRC would not accept a self-employed locum as having the same rights as an employed member of staff.
3. Control over work
The third is that the locum (although providing GP services) is entitled to deliver the service required as they desire. They can organise their sessions as they wish and should not be controlled by the practice. The locum is responsible for the quality of the work that they provide - however it would be in their favour to work in accordance with the practice ethos to ensure the patients are receiving the same quality of care they have come to expect from their practice.
Effect on taxation
If your locum is self-employed they must tell HMRC as soon as they begin to provide locum services to avoid any potential fines. This is so HMRC can assess the type of tax and national insurance contributions that should be paid.
When you have an employee (who is on the payroll and has a standard employment contract) you will pay the PAYE, employee’s and employer’s NIC’s on their behalf. However, a self-employed locum will be responsible for paying over their own tax and NIC liabilities.
Effect on superannuation
With effect from 6 April 2017, a 14.3% employer’s superannuation contribution is charged by the locum to the practice through Locum Form A. This is calculated as follows:
Locum fee sessional rate: £85
Pensionable pay 90% x sessional rate: £76.50
Employer contribution 14.3% x pensionable pay: £10.94
The practice therefore pays £85 + £10.94: £95.94
This is in addition to the employee tiered contribution rate which ranges from 5% - 13.3% depending on the total pensionable pay for the year shown in Locum Form B. It is the locum’s responsibility to document their earnings so that the correct contributions can be calculated and paid over to the Pensions Agency.
Practices should be aware that hiring the services of a locum who is either retired or trading under a limited company will not have to pay the employer’s 14.3% contribution as these two options are exempt from the NHS Pension Scheme.
This basic contract between practice and locum makes it clear the practice is seeking the services of a contractor and not those of a permanent employee.
HMRC has been known to challenge locum employment status and as noted above, it is essential to adhere to the basic principles of self-employment. Should the HMRC query the status of any of your locums, a contract can be presented as a provision to further prove the locums status as self-employed.
A basic contract between the practice and each locum should reiterate that the practice is seeking the services of a contractor and not those of a permanent employee.
For a model contract, Ramsay Brown and Partners has prepared a basic pro forma that can be tailored to your individual practice needs and can be downloaded above.
- Katie Emma Singer is a partner at Ramsay Brown & Partners
- IR35: Find out if it applies - information on gov.uk
- Information for practices and locums on the implications of IR35 - from Ramsay Brown & Partners
This is an updated version of an article that was first published in January 2014