In the public sector, you can experience a rise in the involvement of umbrella companies. The companies are offering liberty to public sector workers to switch to contractor-based jobs. Since the contractors are awarded the freedom to work and no time wastage, you can play your boss and can increase your monthly income by seeking help from umbrella companies. The individuals from various professions such as nurses, doctors, and teacher have come together to become contractors and take advantage of the same, but one has to undergo the IR35 investigation.
IR35- THE ULTIMATE DECIDING FACTOR
The government borne initiative, IR35 is an anti-avoidance tax legislation which is applied to workers offering services via an intermediary. IR35 was introduced to deal with the disguised employment issues.
THE DISGUISED EMPLOYMENT
The disguised employment is a condition where higher-paid individual dramatically manipulates their income tax bill by working capriciously through their form of a limited company.
FALLING INTO INSIDE IR35 AND OUTSIDE IR35
According to the HMRC, if you share the limited control and responsibility for your work environment, similar to a permanent employee, then you fall under the inside IR35 category. These contractual employees exercise the benefit of being a PAYE contractor with regular NICs and income tax deductions from every payment made to the intermediary. This means the income tax is paid out in the form of corporation tax paid by the limited company.
A few public sectors workers are in the habit of determining their IR35 status. In case they misjudge their status from inside IR35 to outside IR35, they can land in deep trouble. HMRC will conduct a detailed investigation which could force the individuals to make previous payments with a considerable backlog, penalties, and interest. There is only one way to sneak-out from this hefty trouble is by purchasing IR35 insurance beforehand. To fight this atypical issue, the IR35 statuses are now determined and assessed by the employer (it can be a governmental department, local authorities, or NHS trust). It is mandatory to inform the inside IR35 status of an employee within 30 days.
FEW RULES AND REGULATIONS OF IR35 FOR NURSES, DOCTORS, AND TEACHERS
If an employee falls into the inside IR35 and the client directly makes the intermediary payments, then there is a need to deduct PAYE income tax and NICs before any other transaction is done. Similarly, in case the intermediary transaction is made by a recruitment agency, it is the client’s responsibility to inform the operation of IR35. In such cases, the agency takes over the job of tax deduction and NICs from payments.
If the agency fails to make the correct deductions, they are liable to face financial liability. To avoid such hefty outstanding tax penalties and interests, the NHS has issued a safe cover. According to NHS, locum or agency doctors and nurses fall in the category of IR35 only irrespective of anything. Specialised umbrella companies welcome this change.
According to umbrella companies, every employee is considered to be a full-time employer, and every transaction falls into the invoices category and is backed up by all the timesheets and expenses claimed and submitted. The umbrella company then issues the final payments in a salary format with tax and NICs deducted beforehand. The teachers who work on long-term supply teacher work are more prone to the classification risk of IR35 as their status depends on the work duration.
Umbrella companies are blessing in disguise for nurses and doctors as they are not concerned with IR35 or any tax liabilities because everything is taken care of by the company. The teacher recruitment agencies nowadays are more inclined to push the new employees to opt for IR35 services offered by umbrella companies. However, please note you cannot be forced to switch to umbrella companies, but if considered, umbrella companies are the best way out of tax crisis.