No tax crackdown on agency social workers yet, but change is afoot

Predictions that agency social workers could be targeted by an HMRC drive to root out ‘false self-employment’ have proven unfounded, but change is afoot in the wake of March’s Budget, experts have told Community Care.

At the end of 2014 we reported on warnings that the tax authorities could be taking a keen interest in social workers who might fall foul of its IR35 rules, which are used to define whether someone is an employee or self-employed.

This hasn’t come to pass. But in his recent budget Chancellor George Osborne announced that public sector organisations will now be responsible for ensuring that personal services companies they engage – such as those used by some independent social workers – pay the correct level of tax.

Assignment by assignment

Limited companies, via which individuals take out their earnings as dividends, are subject to lower rates of tax than employees or sole traders.

The new duty will come into force in April 2017 after the government consults on a “clearer and simpler set of tests and online tools”, Osborne said. Independent social workers operating in the voluntary or private sectors will be unaffected by the changes.

Nicola Anderson, head of accounting at specialist social work accountancy firm Boox, told Community Care that it was so far unclear exactly how locum social workers working in councils and the NHS would be affected. “We won’t know what happens until after the consultation is over later in the spring,” she said.

Anderson reiterated that social workers’ IR35 status is a case-by-case – or assignment-by-assignment – affair that depends on the contract they have with an employer or agency.

IR35

The status hinges on whether, disregarding the personal services company, the contract between contractor and client mirrors that of employer and employee.

A number of factors, including the level of control, requirement for personal service, mutuality of obligation and whether the contract reflects actual working practises, determine this. But being expected to work certain hours and undergoing supervision are not in themselves enough to make workers fall foul of IR35.

Debbie Smith, chief executive of recruitment agency Caritas and social work sector chair at the Association of Professional Staffing Companies, said locum social workers are continuing to work under a “multitude” of setups.

“Some are PAYE, some work for umbrella organisations and others operate under personal services companies – we haven’t seen major changes in our contractor base during the last six to 12 months,” she said.

Various roles

With agency social workers undertaking a wide variety of different roles, Smith added that it would be “dangerous” for HMRC to apply a broad-brush approach around IR35.

“We wouldn’t tell candidates to go one way or the other, but we do make clear what the requirements are,” she said.

An HMRC spokesperson said: “HMRC continues to look at ways to improve its compliance activity on IR35, but we don’t comment on identifiable groups.”

Travel expenses

One section of the locum workforce will, however, be affected by tax changes from this month.

From 6 April 2016, agency social workers operating via umbrella companies and subject to ‘supervision, direction and control’ will no longer be able to claim tax relief on travel or subsistence expenses. For some, particularly those travelling longer distances, this will equate to a noticeable drop in take-home pay.

Workers affected by the changes may want to review their circumstances but should avoid making any hasty decisions, according to Anderson.

“Some social workers are moving from the umbrella route to personal service companies, but they shouldn’t do that based on tax alone; it has to be a rational process,” she said. “You need to consider whether it’s best thing for you, as as you’ll also have to look after your own holiday and sick pay, and so on.”