How IR35 tax changes are impacting social workers

Four months on from the legislative shakeup that has slashed many social workers’ take-home pay, we ask how agency staff are getting on

Photo: Jeff Blackler/REX/Shutterstock (3691740aq) HMRC income tax document, Britain Various

At the start of April, as tax changes came into force that meant big drops for agency social workers’ earnings, many were predicting workplace upheaval.

Under tweaks to so-called ‘IR35’ rules, most locum social workers – along with public-sector colleagues such as nurses – can no longer lower their tax liabilities and claim business expenses by operating as limited companies.

The changes bring closer parity between agency workers and peers on permanent contracts – who also enjoy employee benefits such as professional development and holiday and sick pay.

Some councils had hoped the new new landscape would entice people back to steady jobs. But many practitioners told us at the time that they’d be more likely to stay agency but would no longer be willing to travel long distances for work.

Four months on, we interviewed 15 social workers, as well as agencies and professional bodies, to assess the immediate impact of the reforms.

Hit in the pocket

Almost all of the social workers we spoke to said they’d been hit in the pocket. Those that hadn’t either had alternative sources of income – such as other businesses, or pensions they had started to draw – or had switched to work that keeps them outside IR35; for example working as an expert witness.

Not everyone affected was able to quantify exactly how much their earnings had dropped. But many quoted figures of several hundred pounds a week once the loss of expenses and the requirement to pay employer’s national insurance contributions had been factored in.

The impact of the income squeeze also varied between interviewees.

“I thought I would be worse off than I am,” one Midlands-based practitioner said. “But I now realise I was previously putting away more than I needed to, so that has helped me a bit. And the weeks when I have got lots of visits, I can still claim mileage for those, so that really helps – it pays my petrol for whole week and tops up my wage.”

Others were faring much less well. Some mentioned cutting back on things they’d previously taken for granted such as holidays and family days out. More worryingly, another social worker said that all her savings were gone and that she had taken out two payday loans as she is “no longer able to make ends meet”.

Next moves

People’s different situations meant they were exploring various options to adjust to their changing circumstances. As predicted in March, though, most said they would no longer be taking jobs that incurred significant travel expenses, which can no longer be claimed back.

Five social workers said they were at least considering going permanent, with many of those reporting that colleagues had already done so. But some pointed out they were doing so only because they had run out of other options and felt financially insecure in the wake of the IR35 shakeup.

“The bigger picture is, this won’t change – they have got us,” said one. “I’m 48 so you get little thoughts like, ‘What if I get sick?’ That’s what’s nudging me back towards permanent, but it’s not really the right motivation.”

In a similar vein, some who are opting to stay locums argued that their choice has never been about money, but about taking care of their wellbeing, staying motivated and having control of their situation, having had previous bad experiences with bullying or stress.

Other workers said they were weighing their options – and in some cases were already on their way out of the profession. “I decided to sell my house, get rid of my mortgage and take time out to do a few courses and start applying for new [non-social work] jobs for September – I feel lucky,” said one.

‘Business as usual’

Despite the signs within our small survey group of people considering a change of pathway, three agency bosses we spoke to said they had seen less turmoil than they were expecting.

“The world didn’t cave in – it’s business as usual for us,” said David Dickie, chief executive at Tripod Partners.

Sarah Kay, director of recruitment at the Taylor Davenport agency, said her firm had lost about 8% of its locum social work business at the time of the changes. “We have been lucky to win new business, so we are back to just above the same position, but you could argue we would have 8% more if the changes had not come into place.”

Debbie Smith, chief executive of Caritas Recruitment, said that in March her firm had seen a higher than usual temp-to-perm movement. “Post that point though, we haven’t seen an increase and a few who went permanent have come back out.”

Smith said she felt this reinforced the theory that most social workers choose to go locum for flexibility rather than for money.

Despite the overall picture seeming relatively stable, however, Smith and Kay said they were already seeing some more remote authorities struggling for staff as social workers became less able to travel – and in some cases having to offer subsidies. “It will be hitting those authorities’ budgets, but will help other councils in cities – they will pick up those workers who don’t want to travel,” Kay said.

Umbrella fears

Smith and Kay both also expressed concern about the proliferation of umbrella companies in the wake of the IR35 changes. These act as de facto employers for increasing numbers of locum social workers and process their earnings. In some cases, these firms promise rates of tax well below what workers pay if they go directly onto an agency’s PAYE payroll.

Just over half of the social workers we spoke to said they had gone down the umbrella company route. Several were angry that their agency had tried to force them to sign up for a particular firm. Some said they had experienced problems with not being paid on time, while others admitted to being worried they were involved with firms who were offering ‘too good to be true’ deals.

“Unfortunately we have seen the emergence of some dodgy umbrella solutions, preying on the transition of contractors [away from operating through limited companies],” said Smith.

“As part of [recruitment industry body] APSCo, the conversation we’ve been having with other social work suppliers is around being vigilant,” Smith said. “Each agency has its own list of compliant umbrellas – and if people are adamant they want to work through another umbrella provider, they need to make sure they are working compliantly.”

Kay added that her agency made a point of not recommending any particular umbrella company, instead directing workers to a list approved by the Freelancer and Contractor Services Association (FCSA) trade body.

“But there are people who come to us and say, we don’t want to work on this list; we have an umbrella company we want to work with,” said Kay, who reckons 70% of Taylor Davenport’s social workers had ‘gone umbrella’.

“I can have 10 people, all on the same base hourly rate but all ending up being paid pretty different amounts by different umbrella companies. We’ve spent a lot of time with our accountant looking at pay slips, but it’s hard to establish who is legitimate.”

Kay added that she is worried about contractors with such firms being hit with punitive retrospective tax bills down the line.

National problems

Ruth Allen, chief executive of the British Association of Social Workers (BASW), agreed that umbrella companies were an increasing problem.

“The issue of fraudulent umbrella service companies has been brought to the attention of BASW prior to these recent changes to IR35 – but much more in the last few months,” she said.

Allen added that BASW, which some social workers have criticised for not being supportive enough during the change period, was “intensively exploring” ways in which it could up its game. “[BASW is] looking at a range of member benefit alternatives including alternatives to existing umbrella companies,” Allen said.

While agreeing with recruiters’ assessment that little had changed in the big picture so far, Allen also warned that the IR35 changes posed serious potential problems for the overall workforce, and especially for rural councils and those with high caseloads, which are often most reliant on locums.

Almost 15% of respondents to an as-yet-unpublished member survey, she said, stated that they plan to leave social work due to the implications of the legislative updates.

“What this whole [situation] will do is to continue highlighting the fact that we have a workforce planning problem, in both adult and children’s social care at a national level,” Allen said. “The authorities that are doing OK are doing OK, but they are the minority in terms of being able to get the staff they want and keep them.”

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18 Responses to How IR35 tax changes are impacting social workers

  1. Katie Politico August 2, 2017 at 5:15 pm #

    IR35 is/was tax evasion pure and simple. The money the government is saving from abolishing it should be used to increase the wages of all social workers and to reduce caseloads so that the dearth of social workers can be reversed and social work become an enjoyable profession again. As importantly the government should apply the same logic to corporations thus saving £80 billion a year that is funnelled away in tax havens but this is unlikely as cabinet ministers and many MPs would be hurting themselves in taking such actions.

    • Paul August 3, 2017 at 10:40 am #

      Hi. For many is not tax evasion. For those of us filled posts short term (when if the local authority could do through normal recruiting channels…advert, interview, refs dbs etc that takes months) to cover sickness, maternity leave etc and often stay away from home…this was about being able claim legitimate expenses. To cover our own pension, holidays and sick pay we have set aside monies weekly. Compare locums to perm staff and sickness rates…we do save councils money.

    • Wendy Holden August 3, 2017 at 1:34 pm #

      I had travelled during my locum post up to 140 miles a day – I live in London because I have family and carer responsibilities and had been working on the Coast.
      Locums were never paid for travel time which for me could be up to 5 hours per day. No job security, no holiday pay. The benefit of locum is the freedom it brings. Not to ‘belong’ to a Local Authority and working self employed is a choice and one that suits me and others well. Locums fill posts where recruitment of permanent staff has been almost impossible and are frequently a great asset because they adapt and change to new jobs bringing a wealth of experience with them. I had to leave a job I liked end of March because I could not afford to stay. We are now faced with unscrupulous umbrella companies and lower rates from the ‘Managed Vendors’ – the Government will not save money because of the profits of the ‘middle men’ – the only benefits I think is to ensure people have a pension – The situation can only be increasing workloads and place more pressure on permanent staff so they are likely to suffer. I can’t see the Government rewarding social workers for ‘savings’ in IR35 money.

    • Paul August 4, 2017 at 10:20 am #

      I have never been an agency worker but have managed them within a mixed team of sws – permanent and agency.

      I don’t agree that the use of IR35 prior to the change was tax evasion – it was legal then whereas it is not now so it would have been tax avoidance then which is perfectly legal. It would be illegal to do it now.

      I have sympathies with the aspiration that having less agency workers could save money which could be used to increase all sws salaries – but the reality is that the motive here from central and local government is to save money and de-professionalise SW (other professions such as doctors, lawyers etc can routinely run their own companies- and with Doctors one sometimes wonders how much of the nhs resource and time is subsidising this work on the side?).

      In other words – while there were reasons to curtail use of IR35 it would be naive to think this was purely for helpful reasons – it is part of de-professionalising SW as a profession.


  2. David August 2, 2017 at 6:23 pm #

    Working as a Social Worker was never about the money, job satisfaction made up for the lack of financial reward. However job satisfaction is well in the past. Lack of maturity / experience in Social Work is of great concern.

  3. Phill wheatley August 2, 2017 at 7:16 pm #

    Ir35 definitely changed my view of independent working. Essentially for me, IR35 introduced all the liabilities of an employee without the benefits I.e. Taxed as an employee, with no ability to offset costs of travel, printing, holidays and sicknes etc.

    If perm doesn’t work out, there’s lots of other non-social work and or training opportunities but for sure, no more locum for me.

  4. Paul August 2, 2017 at 7:29 pm #

    Well the IR35 is a mess. My jobs have all been short term…6 weeks to 6 months, covering sickness, maternity leave or pending perm working who has been recruited starting. I completed the hmrc assessment says I fall outside IR35. i never claimed mileage always put through my ltd co. The job was never going to perm for me. But councils panic and blanket everyone as in IR35. They need educating.
    Financial hit yes. I pay employer and employee NI plus income tax. I cannot claim valid expenses like mileage and accommodation as most jobs been miles away in areas hard recruit….rural or south. I do not wish relocate to a remote area nor can I sell and afford move down south…where I live seems not much work.
    Taking into account tax, NI no expenses it equates to my being on 42% of what I was. Mortgage paid and then strapped for cash so cannot afford travel miles fill a post.
    The real blame is with the councils who used agency workers letting them stay 2 to 7 years (i have met them) in same post. The regulations have always been 2 yrs max.
    Me? Better off on dole than slogging myself to death. Most recent job was 2 plus hours travel. Petrol cheaper than cheap hotel. Adding travel time to work hours equated to £5.32 an hour! Plus i get no sick or holiday pay or a council pension
    Odd how MPs self employed but breach ir35…they cannot send someone to their job…same job for over 2 years.
    All locums should refuse to work..same as nurses threatened….counvils soon be in crisis

  5. John Kelly August 2, 2017 at 8:10 pm #

    I cannot believe CC is running another article on poor agency social workers. It’s an absolute disgrace that LAs pay millions and millions on margins, year on year to protif making organisations and pay silly rates to poor quality practitioners who avoid accountability by moving from post to post.

    • Jan August 3, 2017 at 1:21 pm #

      John how dare you suggest that other professionals like yourself ate moving around to avoid accountability. ?! Get yourself educated and dint be surprised if your workload us wirse if you don’t employ agency workers. Maybe you too after many years if service may have good reasons to want the flexibility of agency work. I hope there will be no one as ignorant as you then. We get paid less than you now. Satisfied?

    • Steve August 25, 2017 at 10:05 am #

      John, I take it that you have always worked PAYE. You do make sweeping statements over the quality of locum s/w s when in reality a manager has a much easier time of dismissing a locum than a permanent member of staff. I have worked in teams where there were staff members on long term sick leave who were known to be perfectly well to work but they were not challenged. One team in particular where the District Manager was off exactly 6 months receiving full pay and then returning back on the slowest “phased return” you could imagine. On the team meetings she did attend she bragged about her many excursions to the US and Europe while she was off sick. Hardly a fair use of public money. I have never had an issue working with either LA permanent employees or contractors and found they can vary in quality regardless of their employment status. It was rather to recognise that the team I was joining at the time was overwhelmed and in need of support. It was never solely about money, but rather autonomy and remaining current in practice. I have worked for managers who have treated locums with disdain (which is ironic when we are supposed to adopt anti-discriminatory practice), and others that have been all inclusive. With the correct selection locums can bring experience to a team and reduce some shortfalls. Rather than looking at others John reflect on your own practice and look to see how you can add value.

  6. Alison August 2, 2017 at 9:14 pm #

    When the tweaks to IR35 came into force I was told by the agency I had 3 options –
    1-stay Ltd
    2- Umbrella company

    I decided to stay working under my Limited Company. I have no issue with paying tax and NI at source. What I do object to is having to pay the agencies NI (they are taking £3.03 per hour from me), this is something I did not agree to or negotiated about. I was just told this is how it works. Also my wages slips do not itemise the £3.03 taken off me per hour, it just shows my reduced hourly rate.

    Prior to the IR35 tweaks the agency earned a fee of me from the Local Authority I was working for and presumably paid their own NI. Why do I now have to pay more NI to the agency per month than I pay for myself. The NI for the agency is around £450 per month whereby my own NI per month is about £250.

    I have rang the tax office but no staff could give me any real sound advice, so I have emailed the tax office help link specifically for IR35 and I am awaiting a response.

    My wages per week prior to the changes for a 37 hour week I picked for approximately £1000 (with some expenses). I paid my self £600 per week, which is no more than what I was on as a permanent member of staff in my previous job on a 35 hour week ( which I got 34 days leave per year, toil, sick pay and a pension).

    With the changes I now pick up approximately £615 this leaving me £15 per week to cover holiday pay, pension and a sickness cover. Which equates to £690 over 46 weeks. Which means I can only be paid for 1 weeks holiday over a 6 week period. I have not started a pension and if I am sick. ..well I just don’t know what I would do.

    Hope this gives a better insight.

  7. Stephen Otter August 3, 2017 at 5:05 am #

    The impact of IR35 was enormous on my income. I am leaving the country in the next few months. Luckily I am speaking fluently English, French and German, I am flexible and well experienced in social work and managment. There are much better paid jobs in Europe, North America and Australia; already lining up interviews and exploring possibilities.
    Good luck Britain – I am out of here!

    • Blackard August 3, 2017 at 12:45 pm #

      High five…. . I may well follow as I’m learning Spanish.

    • Jan August 3, 2017 at 1:24 pm #

      Stephen after the comments of John above and ridiculous pay rates I’m thinking the same . Dual Qualified ,Fast Track SWorker with lots experience not happy with that level if ignorance. Where are you linking on with for jobs in Australia and ?Canada. Ive worked in Australia when younger and it was fine.

  8. Rob August 3, 2017 at 8:42 am #

    I fail to see how social workers have ever claimed to be outside ir35. They seem to fail all of the tests for ir35.

  9. Stella August 3, 2017 at 9:13 am #

    I Am a nurse and totally agree with your comments. The umbrella companies are a mess, agencies pay you low rates on paye. I can barely paid my bills, let alone have extra to live on.

  10. Dunny b August 3, 2017 at 7:10 pm #

    It is unfair that contract staff were brought to the same level of take-home income with permanent staff but not with the security or flexible hours. If a contracting staff don’t go to work they don’t get paid, whereas their counterpart full time staff takes time off and still gets paid the usual monthly salary. It doesn’t make sense.
    In my view, IR35 had simply played into the hands of agencies and umbrella companies who are milking it. Awful and wrong!!

  11. anthony mckenzie August 4, 2017 at 10:24 am #


    What is unfair is when a well known and respected tax specialist agrees (at a cost) that I am outside IR35 and the HMRC on line tool agrees that I am outside the IR35,however the agency I go through made a unilateral decision that all locum staff were inside IR35 and pretty much told the LA’s that this was the case. Now I am restricted to London when my speciality is very much limited due to fewer(and dwindling)resources.

    How(and why) are agencies allowed to make these arbitrary decisions?