The response to HMRC’s private sector IR35 consultation has been widespread. Many companies, both international corporations and local businesses, have sent in varying recommendations for the taxman. The Company Chemists’ Association (CCA) is one such respondent, and what their document says is enough to cause concern.
In short, the UK-based pharma group has confirmed that IR35 will almost certainly disrupt the way they do business, and could impact schedules for medication deliveries for NHS and private patients alike.
You can read the full CCA private sector IR35 consultation response here.
Will there be CCA contractor rate rises thanks to IR35?
The CCA highlights that the threat of being caught by IR35 could prove a strong deterrent for taking on pharmaceutical work within the UK, particularly when it comes to specialists that can choose from contracts all over the world. Our Head of Tax Andy Vessey ATT comments on the CCA’s consultation response, after having written and submitted one himself on behalf of Larsen Howie (which you can also read here).
“The CCA says that imposition of the ‘off-payroll’ rules may lead to an unwillingness of people to work within the pharmaceutical sector,” Mr Vessey says. “They will, therefore, be faced with either having to increase the rates for contractors to compensate for the PAYE tax and National Insurance Contributions (NICs) deductions suffered by the contractor or work with a firm like Larsen Howie to find potential solutions to preserving their workers’ self-employed status, where possible.”
Mr Vessey also reflects on HMRC’s lack of action when it comes to clarifying the boundaries between contractor and employee, especially in regards to the subject of locum medical staff. He says:
“It is interesting to note that even after discussions with HMRC about locums, HMRC has still not produced any clear guidance on their employment status that satisfies the CCA.”
“The CCA has suggested assessing status by role as a solution to their headache but, again, HMRC has not given any clear position on this. Given that this is something that the consultation document was suggesting, I can only assume that there were too many self-employed roles being suggested that the Revenue were not keen on accepting!”
How can the CCA minimise the impact of IR35?
As seen in recent high-profile cases such as that of Lorraine Kelly, there are many aspects taken into consideration during an IR35 tribunal. It may be in this that lies some alleviation for the CCA’s concerns – particularly as any medical contractor is subject to relatively high levels of control by nature.
“It seems that the document focused on the control aspect of status but this is only one factor, albeit a most important one,” Mr Vessey continues. “There are other tests that could help place a locum in the self-employed category. The Atholl House decision – more commonly reported on as Loose Women’s Kaye Adams’ employment status tribunal - is a recent example of this.”
There are also ways to pre-empt an employment status determination, such as to get a professional contract review, so changes can be made before the private sector off-payroll reform. Mr Vessey gives some practical advice on the matter:
“CEST comes under much criticism, despite HMRC having vowed to improve it. Regardless, it is clear that the tool cannot be relied upon in all circumstances.”
“There is a suggestion for the reforms to be delayed beyond 2020 to allow businesses more time to prepare and get to grips with the proposed changes, which has support from the likes of the Institute of Chartered Accountants in England and Wales (ICAEW). It will be interesting to see if this idea has enough support from MPs to pressure the government to postpone implementation to 2021, albeit I think it unlikely.”
NHS has already suffered IR35 losses
Dr Iain Campbell, Secretary General of the Independent Health Professionals Association (IHPA), speaks out about how the effects the NHS has felt from the public sector IR35 rollout could be seen in private sector pharmaceutical businesses.
“The CCA is right to identify that this is likely to cause a reduction in those willing to work in the sector," Dr Campbell says. "We may even see a flight of workers abroad similar to the exodus of around 11,000 doctors Office of National Statistics data shows followed the public sector IR35 reforms."
“Our biggest concern is that the burden of conducting the legally required individual assessments with regard to all relevant factors (the full factual matrix) is going to prove unachievable for organisations conducting the assessments," he continues. "The widespread adoption of role-based blanketing without considering individual contractor factors. In the public sector, this was the result of HMRC’s IR35 lead Mark Frampton’s explicit advice that this was acceptable - despite being at odds with the case law and leading to widespread false employment of the genuinely self-employed without rights.”
Dr Campbell also seconds the CCA’s stance on HMRC’s treatment of contractors after they’ve been classed as inside IR35, or a so-called ‘disguised employee’. He reflects that a loss of income and no gain in employee rights is enough to drive much-needed locum workers away from UK medical jobs.
“They [the CCA] are right to bring up the plight of those treated as employees but given none of the rights," he says. "Worse still are those who have all the risks and uncertainties of self-employment and are genuinely self-employed who are likely to find themselves blanketed into false employment without rights in an exploitative worst of all worlds situation - as is the case with many workers throughout the public sector. There will, of course, be a number of workers who will be caught but if the working practices are anything like in hospital work these will likely be very much the minority.”
Additional IR35 advice for contractors
A genuine contractor, freelancer or consultant who is in business on their own account shouldn’t have anything to worry about when it comes to IR35. However, contract reviews are always advisable, as is IR35 tax investigation insurance; whilst you may know that you're legitimate, IR35 investigations are notoriously subjective.
Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.
We also offer IR35 tax investigation insurance, as well as representation from our Head of Tax and resident IR35 expert Andy Vessey ATT should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.