Navigating the complexities of IR35 legislation is crucial for agencies and contractors, especially in the public sector. The introduction of off-payroll working rules, commonly known as IR35, has significantly impacted how contractors are engaged, taxed, and managed. This blog post explores the nuances of IR35, the lack of a small business exemption in the public sector, and the implications of recent developments, including Neuven’s policies.

The NHS and the Challenge of Temporary Staffing

The NHS’s reliance on temporary staff has reached staggering levels. Recent data reveals that hospitals and GP surgeries across the UK spent over £10 billion on temporary workers in the past year. This includes £4.6 billion on agency personnel and another £5.8 billion on “bank” shifts by doctors and nurses. The root cause of this spending surge lies in chronic staff shortages, exacerbated by the COVID-19 pandemic and the political drive to reduce patient backlogs.

In England alone, the expenditure on agency staff, particularly nurses and GPs, has escalated from £3 billion to £3.5 billion within a year—a 16% increase. This heavy reliance on temporary staffing not only strains the NHS budget but also underscores the critical need for robust compliance with IR35 regulations. The financial burden includes payments as high as £5,234 for a single shift by an agency doctor and up to £2,140 for a midwife (source: The Guardian).

Understanding IR35 in the Private and Public Sectors

In the private sector, IR35 rules include a small company exemption. If the end-client qualifies as a ‘small company,’ the responsibility for determining a contractor’s employment status remains with the contractor.

According to the Companies Act 2006, a company is considered small if it meets at least two of the following criteria:

– Annual turnover of not more than £10.2 million
– Balance sheet total of not more than £5.1 million
– Average number of employees of not more than 50

However, this exemption does not apply to the public sector. Public sector bodies are required to assess the IR35 status of all contractors, regardless of their size. Public sector organisations, defined broadly under the Freedom of Information Act 2000, include any government department and most publicly funded bodies, such as the NHS and Transport for London. This is due to the need for heightened scrutiny over entities funded by taxpayers, ensuring transparency and accountability in public spending. The lack of a small company exemption in the public sector means that all engagements must comply with IR35, without exception.

Neuven’s Decision and Implications for Agencies

Neuven’s recent policy change, which prohibits payments through umbrella companies for healthcare contractors, aligns with the Nursing Agencies Concession (NAC). This concession exempts agencies from charging VAT when supplying nursing staff directly to an end-hirer, like the NHS. However, it does not extend to transactions involving umbrella companies, creating potential VAT liabilities for agencies.

Neuven’s restriction reflects a broader industry trend towards compliance and transparency. By prohibiting the use of umbrella companies, Neuven ensures that agencies adhere strictly to NAC guidelines, preventing VAT charges where the exemption applies. This policy change emphasises the importance of choosing compliant payroll solutions to avoid unnecessary financial burdens.

Our Solution: The Healthcare Agency Hybrid Model

At Agency Payroll, we provide a compliant and flexible solution through our Healthcare Agency Hybrid Model. This model merges the benefits of traditional payroll and umbrella services, offering a comprehensive approach to managing contractor payments. Here’s how it works:

1. Umbrella or PEO Model: For non-panel or non-NAC work, workers are employed under an umbrella model, providing continuous employment benefits and flexibility.

2. Payroll Bureau (PB) for Panel/NAC Work: For work covered by the NAC or involving panels, payments are processed through the Payroll Bureau under the agency’s PAYE reference. This ensures compliance with NAC rules and avoids VAT charges on exempt services.

This hybrid model enables agencies to manage their payroll processes efficiently while ensuring compliance with all relevant regulations. It offers a seamless experience for agencies, workers, and end-clients, minimising administrative burdens and potential legal risks.

Are You Paying Too Much for Your Payroll?

To better understand your payroll expenses and explore potential savings, we invite you to participate in our questionnaire: Are You Paying Too Much for Your Payroll? This short survey will help you evaluate your current payroll costs and identify areas for improvement. Click HERE to access the questionnaire and discover if our tailored payroll services can benefit you.

The reliance on temporary staff in the NHS and the complexities of IR35 regulations, especially in the public sector, necessitate careful management and compliance.

At Agency Payroll, our Healthcare Agency Hybrid Model provides a compliant, efficient, and cost-effective solution.

By staying informed and choosing the right payroll management strategy, agencies can navigate the challenges of IR35 and ensure seamless operations.

For more information or to tailor a package to your needs, please contact us at 033 033 36572 or visit www.agencypayroll.co.uk