Tax reforms set to hit agency social worker earnings

Locum social workers among public-sector contractors likely to be caught by HMRC proposals, according to experts

Picture: Nicholas Bailey/REX/Shutterstock

Agency social workers who operate as their own companies could see their earnings hit under proposals to reform tax rules for public sector contractors, experts have warned.

Changes to so-called ‘IR35’ tax rules look likely to see more agency staff paying full PAYE and National Insurance, the same as permanent employees, rather than using their companies to pay corporation tax, a cheaper option that boosts their take-home earnings.

Recruitment agencies claim the changes could worsen the recruitment crisis in social work, with one telling the Treasury that staff who already feel “undervalued and underpaid” could quit the profession. Councils argue the proposals could “level the playing field” between permanent and agency social work, by removing a tax advantage they feel was unjustified.

The changes

Under the proposals, due to come into force in April 2017, HMRC will make whoever pays the contractors, in the case of agency social workers this will usually be recruitment agencies, responsible for ensuring workers operating as their own companies are paying enough tax. Contractors can currently make assurances that their companies fall outside of PAYE and NI rules and instead pay corporation tax.

If the changes go-ahead, recruitment agencies are likely to err on the side of caution in fear of falling foul of HMRC. This means most agency social workers would be taxed at source like employees, paying full PAYE and NI, and being left with less from their pay packets than they would under the corporation tax arrangements.

Recruiters’ warnings

Jamie Trick, managing director of recruitment firm Sheldon Phillips, has written to chancellor Philip Hammond expressing concerns over the proposals after discussions with agency social workers.

In the letter, seen by Community Care, Trick wrote: “Contractors were adamant that this move forward being proposed by HMRC would push them to leave the sector.

“When asked why, the response was simple – social services are under such dramatic pressure, thanks to budget cuts and pressures in the sector, that they feel they are already undervalued and underpaid in some cases.”

Trick told Community Care he also feared that if firms such as his begin taxing social workers at source, some may be tempted away by less scrupulous recruiters offering to help them pay less tax. However, the “biggest issue” currently is that most locums simply don’t know about the changes planned, he added.

Tania Bowers, general counsel at recruitment firm industry body APSCo, echoed Trick’s concern that the changes could make it harder for authorities to recruit staff and said they could also lead to pressure on councils to increase fees for agency placements.

“In most placements, there isn’t that 13% National Insurance cost [factored] in there, so either the contractor will have to get a reduction in pay or the rates will rise to meet that,” Bowers said. “I don’t think it will be the agencies pushing it; I see it as a demand coming up from social workers.”

Local authority views

Nick Hollier, deputy director HR at Bexley council, said locums were a valued part of the workforce. But he questioned why, in addition to attracting higher basic rates than permanent staff to make up for the loss of benefits such as holidays and pensions, agency workers should also enjoy advantageous tax positions over permanent staff.

“Discussions around the IR35 proposals are ongoing,” he said. “We know we need to get into the detail of this, and discuss with agencies and staff themselves. But we think there’s an opportunity here to talk to our locum staff about the playing field becoming more level – and to communicate the advantages of being permanent.

“One challenge for all local authorities is to look at some of the reasons people went into the agency market in the first place. We’re working hard, as are other boroughs, to improve caseloads, management and supervision and to offer real benefits in terms of training and development [for permanent staff].”

In February, councils across London, including Bexley, announced an agreement between them to cap rates for agency children’s social workers in response to concerns over spiralling bills. Councils in other regions have made similar arrangements.

Rachael Wardell, chair of the Association of Directors of Children’s Services (ACDS) workforce development policy committee, noted that these memorandums of cooperation had already had some effect in improving workforce stability.

She said: “Each local authority faces its own challenges with recruitment and retention. The flexibility provided by the agency workforce can be useful. However the market needs to be effectively managed to ensure it provides a quality workforce which is good value for money and which does not destabilise existing services.

“Changes in taxation policy are driven by central government. We hope that committed social workers would remain in the profession despite these changes.”

‘A wake-up call’

One tax expert warned that whether agency social workers choose to stay on as contractors or move back to permanent roles, HMRC’s renewed focus in this area could have implications for professionals who have – for years in some cases – chosen to treat their companies as outside of the IR35 rules.

Tax consultant Kate Cottrell said: “What’s coming in April is potentially the biggest wake-up call they’ve ever had. If they haven’t considered their IR35 position properly, they need to be very concerned regarding what they’ve done in the past.”

Earlier this year, Community Care broke the news that hundreds of locum health and social care workers are being pursued for huge sums by the taxman after falling foul of managed service company legislation, another set of rules that govern how personal service companies can behave.

Cottrell warned that few social workers could consider themselves to be “categorically” outside IR35. With agencies now having to report to HMRC details of limited companies they pay gross earnings to, she said, the taxman will be likely to take an interest in companies that are subsequently deemed to fall inside IR35 as and when the rules change.

Contractors attempting to close down their companies had already been attracting HMRC’s attention, she said.

A more detailed picture as to exactly how and when the proposed IR35 changes will take effect should emerge after the Autumn Statement in November, she added.

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22 Responses to Tax reforms set to hit agency social worker earnings

  1. ASYE 2014 September 23, 2016 at 11:31 am #

    Supply and demand, as the piece mentioned the cost will be absorbed by the LA with increased hourly rates.

    • Dan September 24, 2016 at 4:17 am #

      Doubt it.

    • Gabrielle McAukey September 30, 2016 at 10:56 am #

      What is wrong with our profession when we can stand by and be aware that the government have made deals with big business to the tune of 3 million a month to Deloittes, Mott McDonald and KPMG ( Morning Lane Associates ) association with the Chief Social Worker of England and at the same time want to introduce new tax reforms that will hit Locum Social Workers.

      Why is when `the little man` tries to better himself / herself make a decent living wage we always get knocked back. Are we as a collective aware of what is going on in children`s services. Privatisation by the back door. When will they tax the air we breath – which won`t by the way, effect those that own their own islands where the air will for ever be “tax free “. We do know who you are please do not underestimate our intelligence.

  2. A Man Called Horse September 23, 2016 at 1:05 pm #

    HRMC clearly are not interested in the pursuit of people with hidden Swiss Bank Accounts who have evaded tax and hidden Billions despite them having a full list of these people leaked to them by a former employee of a large Switzerland Bank. Instead we have HRMC going after soft targets such as badly paid Social Workers who have opted out of rubbish pay, terms and conditions offered by Local Authorities. The level of pay held down as deliberate Austerity policy with pay rises capped at 1% until 2020. Clearly if you are Google, Apple, or other large Corporations you will get a reduced rate of tax in the UK again Tory Policy. If you are a Social worker who has attempted to work independently, they are going to attempt to ruin you financially. I have said this before and will say it again the Tories are scum, you should expect nothing less than severe punishment for daring to try and earn a decent salary. The message clearly is the Government believes committed Social workers will return to the poor terms suffered by your colleagues or you will not work. The good days are over for Agency Social workers. I wish you all well in fighting back, but the thugs that pass for Government take no prisoners.

  3. manager in child protection September 24, 2016 at 10:14 am #

    It’s wrong to attempt to force people into permanent low paid jobs, when usually we go to places that are failing to safeguard children and help them raise their standards. It’s the Government again trying to get more tax of passionate hard working people. Maybe If they raised the 40% tax to over 150k then maybe many of us would take up fixed term contracts. But they would not possibly do that it would hit white collar workers instead of working class would it not. This will force agencies to raise their fee’s which in turn will cost the councils more money putting further pressure on their already strained workforces, forcing caseloads to go up further and therefore, raising the risks to children. Maybe the Government should consider investing into the profession sooner than attempting to gain from child abuse. I ask the question following this act by the government, when there is another child death will you take responsibility for failing that child or will you blame the over worked under paid social worker and the council they work for?

    • Airstrip Won September 26, 2016 at 9:41 am #

      “. . . usually we go to places that are failing to safeguard children and help them raise their standards.”

      Do you put that on your CV?

      My experience of agency manager is that they arrive, spend a few weeks passing the buck while they ‘learn the ropes’, then leave for a better offer.

  4. marcus September 24, 2016 at 10:22 am #

    social workers are no different from support workers save for that useless degree. And have never understood this harping on about corporate tax; these companies are huge employers whose employees pay taxes. Something has to attract them to invest here surely.

    • Undervalued September 26, 2016 at 12:22 am #

      Always nice to know the effort you put in to a degree would be valued, I guess not. I started training for pharmacy and like you assumed SW would be a walk in the park. I left pharmacy for SW and how wrong I was. 10x more intense than pharmacy. Some indication! Its because of ignorance that our profession will never get the recognition it deserves! I work 10x harder than support officers in my office to ensure the children under my supervision get the outcomes they deserve. Even if its until 4am everyday. And yes at times I do feel like an overglorified PA but this job commands so much more than just paperwork.

    • A Man called horse September 26, 2016 at 12:32 pm #

      I detect a hint of hostility in your comment. I am a Social Worker with a degree in Social Policy and an MA in Social Work, we collectively are much better educated than support workers. Your comment shows a general ignorance about taxation and no understanding that public services require funding. Society, the NHS, Education, Housing, Policing, requires taxation. Corporate Tax evasion is a serious problem that leads to public squalor and private affluence. A general point is that being educated, well informed with an opinion based in some part on facts not prejudice is an essential element of being a professional Social worker. You also clearly demonstrate no political understanding, no economic sensibility, no perspective other than being an apologist for tax evasion. I could go on, that my friend is why you are not a social worker.

  5. Fiona September 25, 2016 at 10:34 am #

    If social workers received good salaries, terms and conditions and SUPPORT and did not have to work a 50 hour week then agency social workers would not be needed as the posts would be filled !!! We fill a gap in areas of deprivation where Local authorities are unable to recruit. We don’t get paid leave or sick pay and have uncertainty about our next contract. The government and HMRC need to think long and hard about making these changes as it will force people out of the profession. I assume this will impact on all other public sector contractors too such as IT and management consultants ????

  6. Concious Observer September 26, 2016 at 4:45 pm #

    I would say that it is a case of the `hay day’ now coming to an end for those social workers who are motivated more by money. It has got out of hand and in my view, and some people have taken full advantage of this. It could not be sustained and not just within social work, just look at the NHS pay bill and the deficit! We all pay the price ultimately.

  7. Andrea September 27, 2016 at 9:04 am #

    A Man called Horse – couldn’t agree more with both your comments.
    Undervalued – you thought SW would be a walk in the park – what are you on ??!
    Fiona – I suspect you’re correct re taxation changes impacting on other public sector contractors 😉

  8. Annoymous September 27, 2016 at 12:12 pm #

    I think it’s about time something is done about Agency workers pay and the lack of tax they pay.

    I once sat next to an agency worker who worked 3 days per week on 33k per year and was getting and an overtime rate when she worked over her hours. Whereas I was sat there earning 25k for 50hrs per week.

    • Anonymous September 27, 2016 at 3:09 pm #

      lol, please excuse my spelling above…

  9. Catherine knowles September 28, 2016 at 8:12 am #

    I have no concerns in any review regarding tax, however, there is a myth that being independent is a quick money making fix…it’s not, I pay personal tax, no contributions, corporation tax, fund my own personal pension plan, do not get paid when I take any holidays or if I am not in contract, only get paid for the days I actually work, pay vat back to the government… the truth why the government is giving this so much attention is due to the shambles of the changes in NHS from trusts to NHS England, significant numbers of senior managers being made redundant getting huge payoffs and then being reemployed by the same organisations. J have also seen this happen in LA’s where ex dcs have retired in a gold plated pension and then come out as specialists and earn huge sums of money…it’s not the social workers who actually do the day job that homecoming need to challenge

  10. Southwest Social Worker September 28, 2016 at 2:53 pm #

    What about social workers who work away from home who now now have to pay twice for accommodation and now have to foot £400+ for the pleasure. There is a national shortage and now the IR35 rules mean we all have to stay local, lose money and pay to work outside of our normal home area, where there may not be enough jobs.

    If the government want to encourage more people in to social work, how is this going to help?

  11. Ltd worker September 28, 2016 at 11:41 pm #

    Not all ltd workers go limited for the money. I work part time due to my health, being agency allows more control and less explanation to my ‘end client’. The LA I work for through my ltd company used to employ me, but didn’t let me drop a day, so I quit and went agency. now I’m back on my terms.

    Maybe I’m just not that good at negotiating wages, but once accountancy fees are factored, the increase in pay is proportionate concidering I don’t receive any sick, holiday nor, mat leave. No job security, but for me, the increased freedom is worth it.

    Personally, I believe my contract falls within the ir35 regulations, as such I pay ni and my deductions are not that different than when i was paye through my agency. Yes, I can claim some additional expenses but I think most people would be surprised at how little the difference is.

    There’s others in my office, basically on the same role, who believe they fall outside ir35. For me, I didn’t want to worry about the tax man catching up with me later. I can see the argument for both beliefs.

    What we really need is some good, clear guidance. I’m happy to pay my share of tax, I’m happy to take the increased freedom and lose the security. But I’m not happy with the demonization of agency workers as ‘money grabbing’. There’s pro’s and cons to being employed directly or the various forms of agency work. Let’s not have a race to the bottom and appreciate a little diversity within the office itself.

  12. Jacob Daly September 29, 2016 at 12:32 am #

    I have only recently set up a company and to be honest, it wasn’t because I wanted to earn mega bucks but rather, I wanted to do something where I had a say in what I was doing and had a bit more time to do some of the things I wanted to do. I would be perfectly happy to pay whatever tax – be it PAYE and NIS and in fact I have set the company up so that I do this. It is certainly very different to what I was doing previously and you do have to cover your own sick pay, holiday pay, insurance and business costs. I am not complaining but one of the reasons that the rates are higher for agency is because of these costs plus the 15% commission that agencies get themselves for every hour you work. I personally don’t have a problem with the changes but I think it should be possible to have a company and pay NIS Income Tax and be able to do a number of different things as I do. I don’t want to be criminalised because of a system and think we must be careful not to have a one size fits all. We can have companies, we can pay tax same as everyone else, it just requires a bit of flexible thinking on the part of HMRC.

  13. Laura September 29, 2016 at 9:27 am #

    I can’t get annoyed about this. Pay the taxes you owe.

  14. John September 29, 2016 at 1:23 pm #

    “Councils argue the proposals could “level the playing field” between permanent and agency social work, by removing a tax advantage they feel was unjustified.”

    And the paid sick leave and vacation enjoyed by employees?

  15. Debbie September 29, 2016 at 10:13 pm #

    I have become an independent to carry out assessments and am hoping I never have to go into a Children Services office again. I am not after big bucks just enough to tide me over. The most important thing to me is that I can control the amount of work I take on so that I can do a good job. Workers having their own limited company is a convenience for local authorities as it means they do not have to deal with tax and ni themselves and many will not give you work unless you are a limited company. I am happy to pay whatever tax and ni I am supposed to and just pay what my accountant tells me I need to. I am about to fork out £1600 for training to enable me to complete another type of assessment to try to get more work but there are no guarantees.