U-turn over agency staff tax rules

The regulator has reversed its previous advice that NHS trusts should apply a blanket approach to agency staff. Instead, the new guidance today advises employers to carry out a case by case assessment.

NHSI chief executive Jim Mackey had previously written to NHS trusts in February telling them that he expected “all locum, agency and bank staff” would come under the new IR35 tax rules from 1 April.

This was despite guidance from HM Revenue and Customs, published earlier that month, which made clear that employers needed to consider each case individually.

The new tax rules shifted responsibility for paying tax and national insurance for self-employed workers to their employer. The changes sparked widespread problems across the health service last month as agency staff turned down shifts or failed to turn up for work.

Many locum doctors and agency staff supplied their services to the NHS via personal service companies which allowed them to legally limit their tax liability by drawing income from their company profits. Switching to PAYE meant significant reductions in income for some agency staff.

HMRC defended the rules saying the government believed all staff should be paying the right amounts of tax similar to employed staff. However agency staff have argued they do not have the same protections as employed workers and have to cover their own pension, sickness and holiday pay costs.

Today NHS Improvement has said it was wrong to say all agency staff should be under the new rules and has published new guidance to trusts making clear they should carry out a case by case review.

This also includes considering representations from the individual agency staff affected which could substantially increase the administrative burden on the NHS.

The new guidance says: “On our understanding that many individuals currently providing services to the NHS through intermediaries fall within IR35, we [previously] anticipated that providers would need to ensure that all locum, agency and bank staff were subject to PAYE and on payroll for the new financial year. This was not accurate and our revised position is as set out below.”

The U-turn by NHS Improvement comes almost two months after IR35 rules came into place and follows complaints by agency staff over the blanket approach.

An NHS Improvement spokeswoman said: “Our priority is to help encourage NHS providers to ensure that agency staff pay the correct tax. Today we have published updated guidance on the IR35 rules, which amends our previous guidance to trusts and ensures that there is no ambiguity in what trusts are expected to do.

“Trusts should not assume that all agency staff will fall inside IR35; they need to assess whether or not the IR35 rules apply on a case by case basis.

“Our updated guidance encourages trusts to seek expert advice or approach HMRC in cases of ambiguity. We hope this will contribute towards trusts taking steps to ensure that agency staff pay the right amount of tax and the same amount as NHS staff doing exactly the same job.”

The introduction of IR35 led to United Lincolnshire Hospitals Trust being “hours from closure” after locum staff failed to turn up for work. Trusts across the East Midlands had to support the trust to maintain its A&E.

The trust saw unfilled hours on doctors’ rotas soar tenfold, from 16 hours a week to 166 during April.

Elsewhere 11 emergency doctor locums at middle grade level failed to turn up for work at University Hospitals North Midlands Trust with hospitals across the country reporting similar cases. The GMC issued a warning to doctors that if they put patients at risk they could be sanctioned.