Over a third of social workers are concerned about the level of tax they are paying since the reform of off-payroll working in the public sector.
UK social care career advisor Community Care carried out a survey of more than 250 social workers. The aim - to find out how their working lives had been affected by the IR35 changes.
It found that there has been no seismic change in the employment landscape. But, most survey respondents still doing local authority agency work reported being much worse off than they had been previously. A £250-a-week drop in take-home pay was not unusual.
The result - many practitioners, some of whom used to travel hundreds of miles for work, now stay closer to home. Others have been drawn to higher risk tax arrangements to try and maintain previous earnings.
The switch to umbrella companies
Among survey respondents who had been agency workers pre-IR35 changes, and still were in early June 2018, 70% had switched from their limited company to an umbrella company since the rules changed.
While many umbrella firms are fully compliant with tax legislation, one in three social workers admitted feeling concerned about the level of tax they had been paying out. Half described financial setups of uncertain compliance.
One said they had been involved with umbrella companies offering an arrangement via which part of earnings are paid as a ‘loan’, which is never paid back. This is something which HMRC is already cracking down on. Several had already received a letter from the taxman warning their affairs are being investigated. Others said colleagues had.
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Carolyn Walsh, of UK tax and employment specialist CWC Solutions, has been advising social workers involved in non-compliant schemes. “There’s no such thing as keeping your head down,” she said. “When HMRC knows what your agency paid your umbrella company, they can see what tax has been paid over and work out the difference. If you think otherwise you are deluded.”
HMRC’s aim is to take down operators promoting tax avoidance. But in doing this, Walsh explained, the tax authority will hit thousands of social workers with punitive charges if they do not get their affairs in order. Other public sector professionals such as doctors and nurses will also be hit.
According to Community Care’s survey, some social workers admitted to signing up with schemes they knew deep down were probably too good to be true to maximise their earnings. But others said they were guided by recruitment consultants. This subsequently landed them with hefty bills.
One respondent said she was recommended to use a company called SmartPay to help resolve the IR35 situation. This loan scheme has since been suspected by HMRC of facilitating tax-avoidance.
Know the danger signs
APSCo, a trade association for recruiting firms, acknowledges non-compliant umbrella companies remain a concern.
Tania Bowers, general counsel at the organisation, said that the proliferation of schemes offering unrealistic tax rates has been driven largely by demand from workers. But she admitted referral payments to consultants from umbrella schemes is “something that exists and that we want to stop.”
“We have issued significant guidance to members about how best to work with umbrella companies, the danger signs, how to set up a preferred suppliers list,” she says. “We have been advising this must be reinforced with training. And supported by robust treatment if individual consultants are discovered to have been trying to encourage contractors to work with certain umbrella companies.”