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The Pharmacists Defence Association has asked all locum pharmacists to ensure that they have the right tax and business arrangements in place as the proposed changes to off-payroll working (IR35) rules are to come into force on 6 April.

The government has last year postponed changes to IR35 rules for a year in light of the Covid-19 crisis. Announced in the 2018 Budget, the rule change was expected to take effect in April 2020.

It proposes to make medium and large-sized private sector organisations responsible for determining the tax status of contractors (not to be confused with pharmacy owners) and ensuring that the right employment taxes are paid.

“PDA recognises the significant potential impact on locums from this change and hence recommends those members check their arrangements and understand the likely consequences of this change by obtaining expert advice from their tax and business advisors,” the association has said on Wednesday (Feb 3).

The reform is aimed at addressing perceived tax avoidance through disguised employment. In situations where someone is being engaged as a contractor through an intermediary such as a locum agency or their own company, rather than being employed, the rule change proposes to treat them as an employee for tax purposes.

This would require deducting income tax and national insurance contributions (NIC) before payments are made. The government believes this situation is widespread, leading to the non-collection of £100m in tax income.

This change was implemented in the public sector in 2017 and as a result, the HMRC say they are now receiving more tax income.

“However, changing tax treatment could cause locums to take home significantly less income and therefore it is important they are prepared for what is about to happen,” the PDA said.

“Until now, in the private sector, it has been for the contractor to decide their employment status and hence their tax arrangements.  From April, unless the main client (pharmacy business) qualifies for the small company exemption they will be required to determine the contractor’s IR35 status. If they decide the contractor should be taxed as an employee, the client will be required to deduct tax and NIC at source alongside the PAYE deductions they make for their actual employees,” the association pointed out.

When a client decides that a contractor is to be treated as an employee under IR35, they must issue the contractor with a Status Determination Statement (SDS) before making the first tax and NIC deduction and should provide an opportunity to challenge their decision.

If there is an agency in the chain between the main client and contractor, then the agency must also be provided with an SDS. The SDS must include details of the employment status decision reached as well as the reasoning behind the conclusion.

“However, the appeal will still be internal to the client and so it remains their decision. Undoubtedly, clients will remain mindful of the risk of them becoming liable for unpaid tax if they do not deduct it at source and if unsure may decide it is easier for them to deduct and leave any contractor to argue for tax back from the HMRC, rather than risk that obligation,” the PDA said.

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