Case may be the ‘tip of the iceberg’, experts warn

Two unions are bringing a case on behalf of locum doctors and healthcare workers, arguing they have been unfairly treated by the NHS’s blanket application of the IR35 rules. 

The Locum Doctors Union and the Healthcare Professionals Union – which contend that their members have lost between 30 and 50 per cent of their pay because of the way the IR35 rules were enforced across the NHS – have instructed a solicitor at Duncan Lewis to start an application for judicial review. 

Since April, public sector organisations have been responsible for determining the employment status for tax purposes of their contractors. Those deemed to be ‘inside’ IR35 are taxed in the same way as employees, even though they may not be eligible for a number of employment rights. 

NHS Improvement (NHSI) – which is responsible for overseeing NHS foundations and trusts – stopped applying blanket IR35 decisions to contractors in May. However, the unions claim locums have been penalised by “unqualified, unsupervised” NHS admin staff, who have conducted assessments of workers without supervision, training or knowledge of the up-to-date guidance from NHSI. 

The unions also allege that, despite the U-turn, NHSI has continued to encourage NHS Trusts to treat many contractors as being within the IR35 rules.

Experts have warned that this may just be the beginning of contractors heading to the courtroom over the IR35 reform.

We have been speaking to consultants experiencing problems whereby the NHS is ruling them as caught by IR35 when clearly they should be outside,” Dave Chaplin, chief executive and founder of ContractorCalculator, told People Management. “One sticking point appears to be the HMRC CEST tool, which is incorrectly stating that these consultants are caught by IR35. Independent assessment by lawyers finds otherwise – but the NHS says it has to use the HMRC tool. We have also heard about consultants who, when agreeing to a contract, ask for an IR35 assessment only then to be told the contract is unavailable.”

Julia Kermode, chief executive of the Freelancer & Contractor Services Association, said: “As HMRC does not have an appeals process for anyone deemed to be wrongly inside IR35, legal action is the only option. This is likely to be the tip of the iceberg.”

And Jordan Marshall, policy development manager at the Association of Independent Professionals and the Self-Employed, said: “There are question marks about whether public sector bodies are taking ‘reasonable care’ in assessing IR35 status, as the law requires them to do, so we encourage public sector clients to have a clear internal appeals process.”

 Rather than seeking legal action, other research suggests that some public sector contractors have decided to vote with their feet. A survey by the Association of Professional Staffing Companies, published earlier this month, revealed that 70 per cent of recruiters had seen a fall in public sector contractor placements since April, while 45 per cent had also seen evidence of contractors increasing their rates since the rule change. 

And, in June, recruiters told People Management that some public sector contractors were choosing to retire rather than work under the changes.

A spokesperson for NHS Improvement said that it had published guidance for trusts on the tax rules, which stressed they should not automatically assume agency staff fell within IR35

The spokesperson added: "We recognise that this is a complex period of change for trusts and workers, so we’re working with all relevant stakeholders, such as HMRC, staff representatives and trade associations on ways to support them as far as our remit allows."

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