BUSINESS IN FOCUS THE DEATH OF THE LOCUM
THANKFULLY I DON’T MEAN IN THE LITERAL SENSE BUT IF HM REVENUE & CUSTOMS (HMRC) HAVE THEIR WAY IT COULD PAVE THE WAY FOR THE END OF THE TAX BENEFITS CURRENTLY ENJOYED BY LOCUMS
AND THOSE WHO EMPLOY THEM. BACKGROUND
Locums have historically been regarded as self-employed individuals by most parties including HMRC.
This self-employment status means that locums can claim a range of expenses against their tax bill; the extent of expenses claimable by locums tend to be more generous than those who are employed.
Also the National insurance rate applied to self-employed earnings is lower than that applied to employee earnings. Finally, the national insurance charge for employers on employees earnings (above £8,112 per annum) is 13.8%, whereas, there is no employer’s national insurance on payments to locums.
EMPLOYMENT TEST As you will have concluded from the above, less tax and national insurance will be collected by HMRC from the earnings of locums, as opposed to the earnings of employees.
HMRC have started to take a stronger approach in contesting the employment status of locums.
In determining whether a locum is self-employed or employed, a number of tests have to be examined, some of which I have detailed below.
1. Does the locum determine when they work?
No, the time and days are determined by the Pharmacy engaging them.
2. Does the locum provide any tools or equipment?
60 - PHARMACY IN FOCUS
No, these are provided by the pharmacy.
3. Does the locum perform their duties at their own premises?
No, all duties must take place at the pharmacy.
4. Does the locum engage their own staff?
No, all are provided by the pharmacy.
5. Can the locum engage a substitute?
No, if the locum couldn’t work on a particular day the pharmacy would choose another locum.
6. Does the locum need to have their own professional indemnity insurance?
Yes.
From the above questions and answers you will note we only achieved one indicator of self- employment thus, any argument with HMRC on the self-employed status of a locum would be a difficult one. Unfortunately, to convert most of the answers to the above questions to a yes is simply not commercially viable for the pharmacy.
A common argument in favour of self employment is the number of engagements a locum undertakes in any one year with different pharmacies. Unfortunately, if the above tests cannot be passed, the number of engagements becomes irrelevant and HMRC could assess each engagement as a temporary employment.
RAMIFICATIONS A successful employment status
challenge by HMRC will firstly place responsibility on the employing pharmacy.
HMRC could treat payments made to locums as being made net of PAYE and national insurance, as well as applying an employer’s national Insurance charge. This would effectively double the cost of engaging that locum. Additionally, HMRC could apply the above for the previous four years.
In my experience, the local HMRC inspectors have not applied the net payment approach to employers for income tax purposes on the condition that the locums have paid their own taxes correctly. However, HMRC have applied the employer’s national Insurance charge on the payments to the locums and insisted that those locums be treated as employees for future engagements.
From the locum’s perspective they will lose the ability to claim some expenses, most notably motor and or travel expenses. Many locums claim the cost of travelling to/from each of their engagements against their taxes, however employees are unable to claim travel to/from their place of work.
In other sectors those individuals that who operated as self-employed and were concerned about their status
formed limited companies cannot be treated as employees. However, the government subsequently introduced legislation known as IR35 to target these type of companies which essentially removed the advantages.
THE FUTURE
It does appear that HMRC are taking a keener interest in the employment status of locums, at the time of writing HMRC appears to be targeting individual cases rather than a wholesale attack on the entire industry; this may continue or it may not.
If any of the points noted above affect you or somebody you know please speak to: Robbie Barr on 028 9032 5050 or email:
robbie@muldoonaccountants.co.uk.
Muldoon & Co Chartered Accountants, 16 Mount Charles, Belfast BT7 1NZ
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