Changes to legislation for those working through their own companies providing services to the NHS – Applicable from 6 April 2017
Legislation for those, like you, who provide services to the public sector through their own Personal Service Companies (PSC’s) is changing for payments made from 6 April 2017. These changes will apply to all agencies/organisations supplying labour to the NHS (and other public bodies) through a PSC, as well as PSCs directly engaged by the NHS.
Current legislation applying to PSC’s requires the PSC itself to look at each engagement in place and assess whether that role is akin to employment had the individual provided the service directly to the NHS Trust. If it is, under IR35 legislation, PAYE/NIC should be withheld and accounted for by the PSC on a deemed employment amount.
The changes to legislation from 6th April 2017
The changes do not introduce any new PAYE/NIC liabilities, but are designed to increase compliance with existing rules. From 6 April 2017, PSCs will no longer be responsible for deciding whether IR35 legislation applies to an engagement within the public sector. It will be up to the NHS Trust to decide if the rules apply to a contract and if so, where the NHS Trust pays the PSC then the NHS Trust will be obliged to deduct PAYE and NIC from payments due to the PSC and report them in real time via the payroll to HMRC. If an agency makes the payment to the PSC then it will be the agency’s responsibility to deduct PAYE and NIC.
a) The NHS Trust will need to assess the roles being undertaken by you and conclude whether they are akin to “employment” or not;
b) If a role has been assessed as “employment”, the Trust/Agency will calculate and apply the appropriate withholding amounts of PAYE and NIC.
The draft legislation has only recently been issued and the Trusts are currently considering how their processes and systems will need to change to be able to accommodate the above, and we will let you know of any changes that impact you further in due course.
The impact for you
We anticipate the likely impact of the changes for you and your PSC where withholding applies will be as follows:
- You will need to complete a self-assessment tax return (if not already doing so) to ensure correct amounts of income tax are paid in the tax year.
- A BR (basic rate) code will be applied to the income i.e. 20% PAYE will be deducted on account of your income tax on the employment income.
- National Insurance Contributions will be withheld from the payment
- To assist you with your tax filing requirements, the Trust/Agency will issue you with payslips each payment period and either a P45 or P60, during or at the end of the tax year.
- If you are VAT registered, the PSC will need to account for VAT in the normal way but PAYE and NIC will not be applied to the VAT element of payments made to the PSC.
- Self employment will not be allowed for roles within IR35 and you would need to opt for PAYE, PSC or Umbrella.
- There will be no changes to PAYE engagements from 6th April.
- Locums employed via Umbrella companies are subject to the same changes in legislation on the 6th April 2017.
- All signed timesheets received up until and including the 2nd April will not have PAYE/NIC deducted.
- All timesheets received from the 3rd April will have PAYE/NIC taxes deducted regardless of when the work was undertaken.
HMRC has confirmed that there will be no impact on student loan repayments, and any withholding will not give rise to employment rights or the entitlement to statutory payments.
As noted above, we are still working with the draft legislation together with PWC our tax advisors and we are expecting further guidance, which we will update you on in due course. In the meantime, if you have any questions please contact us.