HMRC has announced that from next month there will be ‘changes to the way the current intermediaries legislation (known as IR35) is applied to off-payroll working in the public sector’.

From 6 April, the legislative change will affect all practices that contract locum GPs working through their own limited companies.

Since 1999, the amount earned by a limited company from a contract has been counted as the worker’s salary and is subject to NIC and PAYE payments – as with payroll workers.

Until now the limited company has been responsible for applying the IR35 rules. However from next month, public sector bodies contracting locum workers or agencies will be responsible for applying IR35 instead of the limited companies using an online tool.

Financial penalties

The purpose of IR35 is to tax contract workers whose work is materially the same to salaried workers, in the same way as payroll staff.

If practices fail to identify such IR35 contracts, the legislation includes provisions for financial penalties.

According to HMRC, as GP practices receive public funds, they are currently considered public sector bodies for the purpose of this legislation.

HMRC said that the reform will apply to payments made ‘on or after’ 6 April, including ‘payments made for contracts entered into before that date’.

‘HMRC thinks practices are abusing the system’

Bob Senior, chairman of the Association of Independent Specialist Medical Accountants, said: ‘Historically a GP practice could pay a company providing locum doctor services without deducting tax and NIC.

‘The doctor could then pay a much lower tax and NIC bill when they took the money from the company than they would have faced had they been an employee.

‘HMRC frankly think that GPs using such companies are abusing the system and not paying enough tax and NIC.

‘From my initial assessment it looks like they won’t in future be able to make such payments without deducting tax and NIC even though they are making the payment to a company.

‘This is intended to affect the locum however given the shortage of doctors it is not impossible that the locum companies will want to increase their rates to cover some of the increased costs.’