A newly introduced change is causing major waves with people who invoice the NHS and others for work that they do for them.

It may not be widely known but from April 2017, every public sector body (PSB) has had to review the employment status of each contractor that works for it. Indeed, the term PSB is widely drawn and includes various businesses that provide services to the NHS including GP practices, Dental practices, Opticians, and Pharmacies as well as CCGs. However, the definition does exclude some Out of Hours (OOH) providers and those that hold APMS contracts if they do not hold patient lists.

This reform affects anyone who provides services for the public sector through their own limited company (which is known as a personal service company or PSC). This change also applies to partnerships, but sole traders remain subject to the usual status tests. The reform applies to payments made on or after 6 April 2017, including payments made to contracts entered into and/or completed before this date where payment is made afterwards.

As a result of these changes, the responsibility for PAYE and NIC liabilities now lies with the engaging public sector body and not with the PSC providing the worker. The engager, rather than the owner of the PSC, will have the responsibility to decide if the PSC falls into the rules and, if the engager decides that the PSC does and should be treated as an ‘employee’, they will have to deduct PAYE and Employees’ NIC before making any payments to the PSC. The engager will have to pay these deductions along with Employers’ NIC to HMRC.

In order to help the engager review whether these rules are relevant, HMRC has developed a digital tool, called the employment status service (ESS – see http://tinyurl.com/ess-tool).  Public sector engagers are encouraged to use the ESS to decide if they should apply PAYE and NIC to the company providing services.  HMRC have stated that they will stand by the end result of the ESS review, provided that it has not been achieved through contrived arrangements.

From the contractor’s point of view, depending upon the answers the ESS gives in particular circumstances, it may not be appropriate to run certain contracts through a PSC. The engager will need to decide whether it would be better (if PAYE and NIC are going to be withheld anyway) to make the worker an actual employee for certain projects. Further, if the PSC is caught under these rules, they do not receive the potential for sick pay, holiday pay and other employment benefits and they may prefer to go on the payroll properly to attain such benefits. Otherwise, deemed employment could be seen as the worst of both worlds – PAYE and NIC without the accompanying employee benefits and protections.

Given the above changes, engagers may decide that the best way of ensuring that they are not found guilty of breaching these rules is to apply PAYE and NIC at source, even when this may not be the correct approach – instead, they should be assessing each contract individually, including using the ESS tool. Unfortunately, there is currently no way for a worker or PSC to appeal a decision made by the engager.

A newly introduced change is causing major waves with people who invoice the NHS and others for work that they do for them.

It may not be widely known but from April 2017, every public sector body (PSB) has had to review the employment status of each contractor that works for it. Indeed, the term PSB is widely drawn and includes various businesses that provide services to the NHS including GP practices, Dental practices, Opticians, and Pharmacies as well as CCGs. However, the definition does exclude some Out of Hours (OOH) providers and those that hold APMS contracts if they do not hold patient lists.

This reform affects anyone who provides services for the public sector through their own limited company (which is known as a personal service company or PSC). This change also applies to partnerships, but sole traders remain subject to the usual status tests. The reform applies to payments made on or after 6 April 2017, including payments made to contracts entered into and/or completed before this date where payment is made afterwards.

As a result of these changes, the responsibility for PAYE and NIC liabilities now lies with the engaging public sector body and not with the PSC providing the worker. The engager, rather than the owner of the PSC, will have the responsibility to decide if the PSC falls into the rules and, if the engager decides that the PSC does and should be treated as an ‘employee’, they will have to deduct PAYE and Employees’ NIC before making any payments to the PSC. The engager will have to pay these deductions along with Employers’ NIC to HMRC.

In order to help the engager review whether these rules are relevant, HMRC has developed a digital tool, called the employment status service (ESS – see http://tinyurl.com/ess-tool).  Public sector engagers are encouraged to use the ESS to decide if they should apply PAYE and NIC to the company providing services.  HMRC have stated that they will stand by the end result of the ESS review, provided that it has not been achieved through contrived arrangements.

From the contractor’s point of view, depending upon the answers the ESS gives in particular circumstances, it may not be appropriate to run certain contracts through a PSC. The engager will need to decide whether it would be better (if PAYE and NIC are going to be withheld anyway) to make the worker an actual employee for certain projects. Further, if the PSC is caught under these rules, they do not receive the potential for sick pay, holiday pay and other employment benefits and they may prefer to go on the payroll properly to attain such benefits. Otherwise, deemed employment could be seen as the worst of both worlds – PAYE and NIC without the accompanying employee benefits and protections.

Given the above changes, engagers may decide that the best way of ensuring that they are not found guilty of breaching these rules is to apply PAYE and NIC at source, even when this may not be the correct approach – instead, they should be assessing each contract individually, including using the ESS tool. Unfortunately, there is currently no way for a worker or PSC to appeal a decision made by the engager.

If you have any questions in relation to the above, please contact Keith Miller of the GP healthcare on 01935 423667 or Nick Scull of the tax team at Albert Goodman on 01823 286096

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