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Department of Health warning to NHS on employment status risk

22 November 15 | By: Jas Jhooty

NHS

The Department of Health recently wrote a letter to the Chairs & Chief Executives of NHS Trusts, NHS Foundation Trusts and Clinical Commissioning Groups, warning them that they must take steps now to ensure that the employment status of its off payroll workers is being assessed correctly.

HMRC’s “Know your Customer” reviews

HMRC are currently undertaking a major review of employment tax compliance within the private sector under the guise of their “Know your Customer” initiative. This is to identify which large employers HMRC should be concentrating their investigations on in order to gain maximum yield for the Exchequer as quickly as possible. This is by imposing penalties for perceived failures by the employer to comply with complicated employment tax legislation.

Employment Status Risk

Failing to ensure that the employment status of off payroll workers is being assessed correctly is a major risk factor at these reviews. HMRC Inspectors not only look at the contractual arrangements but will also look in depth at what happens in practice hoping to prove that the employer got it wrong. If successful in their contentions that the worker should never been off-payroll, HMRC go on to seek back tax & National Insurance Contributions (NICs) from the employer for failing to operate PAYE.

Department of Health’s Guidelines

As the NHS is the UK’s largest employer, HMRC will shortly be also be turning their attentions to the public sector. The recent letter from the Department of Health to Chief Executives of the NHS is a warning to get their houses in order now before HMRC come knocking.

To minimise the level of risk the letter advises the following: -

  • All senior staff must be on the payroll.
  • All engagements over six months in duration and paying a day rate of over £220 per day should be reviewed and contractual assurances obtained that the engagee is paying their appropriate tax & NICs. Where such assurances are not received these contracts must be terminated.
  • All existing contracts for services must be reviewed irrespective of whether the worker is engaged
    1. directly
    2. or through an agency
    3. or if they providing their services through a Personal Service Company.

  • A workflow also needs to be developed to again review the employment status after an engagement has exceeded the six-month mark.

Consultation on Personal Service Companies

It should also be borne in mind that following on from a recent consultation, imminent changes are expected to be announced in this week’s Autumn Statement. These could force engagers to be responsible for operating PAYE on invoices received from Personal Service Companies who would otherwise have fallen foul of IR35 legislation. With any new legislation expecting to apply from next April, it is understandable that the Department of Health would be concerned of how this could adversely affect NHS budgets if steps are not taken now.

Employment Status Factors

To reiterate being off-payroll is not a matter of choice for the worker but has to be determined after taking into account a range of factors including: -

  • Is the service of a personal nature?
  • What degree of control does the engager have?
  • Has the worker the right to substitute their work to someone else?
  • Does the worker provide their own equipment?
  • What is the degree of financial risk/ opportunity to profit enjoyed by the worker?
  • Is the worker part and parcel of the organisation?
  • Are there trappings of trade present?

How emTax can help

We recommend that all NHS employers start examining the actual terms and conditions of their engagements with off-payroll workers especially those supplied through their own Personal Service Company. Unfortunately what is written into the contract for services is not as important as what happens in practice when it comes to determining a worker’s employment status.

Our consultants are ex-HMRC and also have extensive experience of working within the “Big 4” accountancy firms. We pride ourselves in being able to deliver “Big 4” quality employment tax advice but at a fraction of their prices.

We have devised a two stage process that will aid employers immensely in this matter. This comprises of: -

  • A review of written self-employed and direct hire Personal Service Company contracts – It is essential to ensure that contracts are robust so that they clarify the basis of the engagement and incorporate relevant assurances to comply with the Department of Health guidelines.
  • A standard ‘Due Diligence’ approach for use when taking on suppliers – We would recommend a standard checklist is introduced as evidence that engager does undertake a thorough ‘due diligence’ approach before contracting with a new supplier.

Having an auditable process to decide whether or not someone should be on the payroll will safeguard employers when HMRC next visit.

Please do not hesitate to contact us for help on this or any other employment tax matter.

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