Tax fears and staffing pressures: agency social workers on life after ‘IR35’

It's now over a year since a change to tax legislation shook up the world of agency social work. We checked in with practitioners to find out what difference it has made to their lives

Photo: Gourmet Photography/Fotolia

I’ve been a social worker for 20 years, and had always been a permanent staffer until not long ago. Then my husband got made redundant and I had to go agency to pay the mortgage ,” says Diane*, a children’s social worker.

Diane, who also has children heading for university, says she spoke to an accountant who advised her to set up a limited company.

The company enabled her to pay less tax than her permanent colleagues – in common with thousands of other agency practitioners, who had been accustomed to structuring their lives and personal finances around the arrangement.

But in April 2017, the government tweaked so-called ‘IR35’ legislation, putting paid to limited-company privileges – which also included travel expenses – for the majority of agency workers whose working patterns are similar to those of permanent colleagues.

The post-IR35 landscape: The picture for agency social workers

A year on, we wanted to see how things have panned out. More than 250 social workers completed our survey asking them how their working lives have been affected by the IR35 changes. We also interviewed 20 social workers in-depth.

Their responses suggest there has been no seismic change in the employment landscape. But, as we first reported last year, some social workers have been drawn to higher risk tax arrangements to try and maintain previous earnings. Meanwhile the restrictive effect the IR35 changes have had on agency workers’ willingness to travel for work looks to be making a tough recruitment situation worse for at least some councils.

‘No such thing as keeping your head down’

Among survey respondents who had been agency workers pre-IR35 changes, and still were in early June 2018, 70% had switched from their limited company to an umbrella company since the rules changed.

While many umbrella firms are fully compliant with tax legislation, a third of these workers admitted feeling concerned about the level of tax they had been paying. Among social workers we interviewed, half described financial setups of uncertain compliance.

Five, including Diane, said they had been involved with umbrella companies offering an arrangement via which part of earnings are paid as a ‘loan’, which is actually never paid back – and which HMRC is already cracking down on. Several had already received a letter from the taxman warning their affairs are being investigated; others said colleagues had.

Tax expert Carolyn Walsh, of CWC Solutions, has been advising social workers involved in non-compliant schemes, many of whom have been stung into action by letters, or by other warning signs such as their tax codes repeatedly changing. Too many others, she warns, are unaware of the financial risk they are in, or are staying quiet hoping things will blow over.

“There’s no such thing as keeping your head down,” she warns. “When HMRC knows what your agency paid your umbrella company, they can see what tax has been paid over and work out the difference – if you think otherwise you are deluded.”

Walsh adds that the taxman’s ultimate intent – as signalled by last year’s Criminal Finances Act – is to take down operators promoting tax avoidance. But in its efforts to “disrupt the market”, she says, HMRC will hit thousands of social workers – as well as other public-sector professionals such as doctors and nurses – with punitive charges if they do not get their affairs in order.

Last month, HMRC issued guidance calling for agency workers involved with loan schemes to come forward. Walsh recommends anyone who has used an umbrella company during the 2017-18 tax year submits a self-assessment as soon as possible to minimise any risk.

“People’s inactivity is going to lead HMRC to take action,” Walsh says.

‘Steered towards loan schemes’

Some social workers admitted to signing up with schemes they knew deep down were probably too good to be true, based on their own research or colleagues’ recommendations, to maximise their earnings.

But others said they were guided by recruitment consultants – echoing an earlier scam we reported on in 2016, which landed social workers and other professionals with hefty bills.

Diane says her recruitment consultant, at HCL Workforce, told her about a company called SmartPay who could be helpful in resolving the IR35 situation.

She says she and many of her colleagues went with SmartPay – a loan scheme, now suspected by HMRC of facilitating tax-avoidance – believing it to be “a loophole, but a legal one”.

Jack, a children’s services manager, also used SmartPay during 2017. He says he was “steered in that direction” by a worker at his agency Medicare First, and that HMRC has been in touch as a result.

“I’m still getting help to unravel what that’s going to mean for me in terms of back payments and tax,” he says. “I was with them about a year – fortunately not longer, but it’ll still be problematic.”

Sophie, a third practitioner, said a consultant at Tripod Partners had in 2017 pointed her towards another scheme.

Her tax code suddenly began changing, before she was informed her umbrella company had switched names. She later discovered that it had gone bust before ‘phoenixing’ under the new identity, and was being investigated by HMRC. An accountant has told her it appears to be a vehicle for tax avoidance.

‘Demand driven by workers’

Community Care contacted each of the agencies named by social workers’ we interviewed.

HCL Workforce did not respond to our request for comment.

A spokesperson for Medicare First said: “As a leading social work recruitment agency [we] help many social workers find permanent and temporary jobs. We are not a tax planning consultancy and are not qualified to give out financial or tax planning advice. Our staff are fully trained on current legislation and not to make recommendations on payment schemes.”

Meanwhile a statement from Tripod Partners said: “Tripod Partners wants to make it absolutely clear that we are a fully compliant business and we take our responsibilities towards our clients, contractors and HMRC extremely seriously.”

But Tania Bowers, general counsel at APSCo, a trade association for recruiting firms, acknowledges non-compliant umbrella companies remain a concern.

She says APSCo members have told her the proliferation of schemes offering unrealistic tax rates has been driven largely by demand from workers. But she admits referral payments to consultants from umbrella schemes – often described as ‘backhanders’ – are “something that exists and that we want to stop”.

“We have issued significant guidance to members about how best to work with umbrella companies, the danger signs, how to set up a preferred suppliers list,” she says. “We have been advising this must be reinforced with training, supported by robust treatment if individual consultants are discovered to have been trying to encourage contractors to work with certain umbrella companies.”

BASW support

Last year Ruth Allen, chief executive at the British Association of Social Workers (BASW), told Community Care the organisation was aware of potential danger to social workers from umbrella companies. Since then a number of social workers have told us they feel BASW has not been proactive enough in advising members.

But Maris Stratulis, BASW’s England manager, says the organisation has been proactively engaging affected members and is currently pursuing ways to provide additional support.

BASW is hosting a meeting in central London on 9 October, at which Walsh will also speak, to hear social workers’ concerns and provide guidance where possible.

Among senior local authority figures, awareness seems to be lower.

Steve Stuart, workforce coordinator at the West Midlands Children’s Services network, describes non-compliant umbrella companies as an “emerging issue”, which councils should be discussing with the ‘master vendor’ recruiters they contract to source workers via smaller agencies.

Rachael Wardell, national workforce lead at the Association of Directors of Children’s Services, adds that she has not had any specific issues brought to her attention – either as part of her national role or in her day job as Merton council’s director of children’s services.

She suggests agencies promoting non-compliant arrangements could be dealt with at a regional level, potentially by blacklisting them, via one of the memorandums of understanding (MoUs) in place across much of the country.

‘Some poor councils can’t attract workers’

Tax compliance fears aside, most of our survey respondents still doing local authority agency work inevitably reported being much worse off than they had been in early 2017.

The amount reported varied considerably, but a £250-a-week drop in take-home pay was not unusual. With expenses also now being met from that smaller income, it’s no surprise many practitioners – some of whom used to travel hundreds of miles for work – now stay closer to home.

“[I’ve become] more picky [with jobs], saying I can only do a distance of X and work from home some of time [otherwise] the commute will be too expensive,” says Carlene, an adults’ social worker who has been with agencies for several years.

Rural councils or those struggling to attract social workers could be hardest hit by this change.

“Some poor councils just can’t attract workers,” says Donna, a children’s agency social worker who recently worked at an ‘inadequate’-rated authority not far from her home.

Donna, who says her take-home earnings are 63% of what they were in early 2017, tells us that while she was there the council had to take on inexperienced agency workers who made mistakes because they were out of their depth.

‘Exceptionally bad’ problems

Some agency managers tell similar tales. One based in the South East, who requests anonymity, claims the tax changes caused “exceptionally bad” problems for some rural councils, which already struggle with staffing because of their proximity to London.

Stuart Ward, the operations director at Manchester-based Liquid Personnel, also says the market has changed.

“[IR35] had a big effect,” he says. “When the new rules were introduced we saw a significant number of contractors who were travelling to more rural areas ask us to find them a job closer to home.

“For our clients in the big cities there are many contractors living within 20 minutes of their door,” Ward adds. “But if they are in a rural area it’s becoming more difficult to find candidates prepared to travel to their placements.”

Lesley Sanczuk, a senior manager at Cumbria council, which covers some of England’s most sparsely populated areas, confirms last year’s tax changes have not made things any easier.

“Our rates rose after IR35 in order to get people to West Cumbria, which is a geographically challenging area,” Sanczuk says.

Supply and demand

But Jo Davidson, executive lead for West Midlands Directors of Children’s Services, says the changes need to be seen in context of the tough situations many councils have faced for years.

“You get reasons for needing staff, around performance – increasingly people pick up issues themselves without waiting for an Ofsted judgment – or get spikes in demand in certain areas,” she says.

“Certainly a lot of places say it’s harder to get people – IR35 has obviously had an impact – but it’s part of an overall supply and demand issue,” Davidson adds.

Wardell adds that councils have not recently been asking to discuss staffing issues stemming from IR35 at a national level. “The places it’s likely to cause pressure are where there are a number of inadequate local authorities within reasonable distance from each other at same time,” she says.

For many local authorities the landscape “hasn’t changed that much”, Wardell adds.

‘Start with a decent wage’

In one key respect Wardell’s assessment matches information provided by our survey group. Three quarters of respondents who were local authority agency workers in March 2017 were still local authority agency workers in June 2018.

Others are already plying their trade outside of IR35, doing independent assessment work in their own time, away from council offices, or working for one of the new ‘alternative delivery models’ set up to run some councils’ children’s services.

Meanwhile a trickle – 25 of the social workers who responded to the survey or were interviewed – are returning to permanent council jobs.

Several point out that keeping people there longer-term, and stabilising the supply and demand issues mentioned by Davidson, will take a back-to-basics approach to investing in pay and working conditions, which sits at odds with years of central government-driven belt-tightening.

“When I went back I was like, ‘What the hell?’, these cases have been left, the agency worker has gone, there is no trail or accountability,” says Caitlin, a children’s social worker who has recently returned to a permanent role. “It’s not good, locums chasing the dollar – families say, ‘Another social worker?!’ But start with a decent wage and that might not happen.”

BASW is currently running a survey looking into social workers’ use of umbrella schemes that may not be compliant with tax legislation. The organisation will also be running an event in London on 9 October 2018 at which Carolyn Walsh will be offering advice. You can contact 0121 622 8407 or for more information.

*Names have been changed

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12 Responses to Tax fears and staffing pressures: agency social workers on life after ‘IR35’

  1. Nicola Crosbie August 22, 2018 at 5:16 pm #

    In all honesty I have very little sympathy for social workers who choose to work as agency workers and then set up limited companies in order to pay less tax. Where do they think the money comes from in the first place to pay their wages? from everyone’s taxes of course.
    The whole situation becomes a vicious circle, local councils can’t recruit social workers on a permanent basis, partly to do with the fact that many workers now want to earn agency rates and not accept the salary of a permanent social worker.
    Also the points made by some of the social workers who have done agency work because it suits them, they can be flexible and move from job to job – have they thought about the families and young people who have to endure constant changes of worker?
    In my experience as someone who has always worked directly for local authorities as social worker, I would of course like more money, who doesn’t?? but I don’t want it at the cost of servcie users having a rubbish service and tax revenues going down. Thatcher did her work well, what happened to the idea of the “common weal?”

    • John August 23, 2018 at 9:16 am #

      Hi Nicola I have worked for over 20 years as a directly employed before I felt I had to leave a job due to poor management which was badly affecting my mental well-being and ending up as an agency worker. Having been on both sides of the fence I can assure you that as an adults SW I was often earning an hourly rate less than my directly employed colleagues – not taken into account the other benefits of being directly employed – pension, holiday pay, sick pay, training. TBH I got really fed up with permanent workers often making sneering comments about how well off they presumed I was and how oblivious they were to how much they were being paid by the employers when you take into account person/holiday pay. Also there was often a tone of self-righteousness about their choice to remain directly employed. Realistically most people are guided by self interest and most directly employed workers CHOOSE NOT to be agency because they want the relative security and financial benefits of being directly employed

    • Vernon Nosal August 23, 2018 at 3:39 pm #

      I joined the locum market in an unplanned way I didn’t have any periods of unemployment but this was a worry. For various reasons I resigned from my employment, mainly to ensure that my values and integrity were not challenged. I think that you will find that taking all of your pay and employment terms (paid A/L, sick leave, compassionate leave, pension and training opportunities) against those of a locum (paid only when working) you will have comparative earnings. I am now back in full-time, permanent employment on a lower salary but considerably better off!

    • Bev August 23, 2018 at 6:15 pm #

      Whilst everyone is entitled to their view I would like to express mine as a highly experienced social worker who chooses to be agency. First;y it is not all about money, but the conditions that we are expected to work in. Personally i was treated so badly by the LA I worked in for 18 years I have never wanted to repeat the experience!
      Being a locum means I can walk away from bullying and being told to compromise my professional integrity.
      The LA’s I have worked for have had a very good level of service from me, with lots of unpaid time.
      The impact of my decision will mean working longer and being locum is by no means the easy option with us often working more weeks with no sick pay to fall back on. Good locums work very hard for their money and can be the bedrock of a team..ive worked in teams where the permanent workers have all left and im the last person standing supporting new staff to join the team and attempting to remain positive.

    • Todd Williams August 23, 2018 at 7:39 pm #

      Im guessing your in a perm job with paid holiday, sick leave, job sercurity and a nice little pension. If your happy to pay more to the taxman to retain those perks thats your own choice.

  2. Mark Tuvey - Managing Director @ OneTrue August 22, 2018 at 10:09 pm #

    The issue with IR35 is it does not take into account ‘genuine legitimate expenses’ that locum Social Workers incur above that of their permanent counterparts like training, travel and accommodation. The locum market is essential to supply a contingent workforce for local authorities when they need it, through staff shortages, increased referrals, transitions of service etc.

    There is no doubt that there was a massive movement in the late 2000’s from permanent to locum work. More pressure was put on Social Workers and social services due to the government cutting community & preventative services, ignoring care of those with low and moderate needs, the results created an absolute catastrophe for front line social work. This increase in workload and pressure meant that the earnings of permanent staff really were not reflective or fair reward making locum working more attractive.

    in speaking to hundreds of practitioners, the one common factor shared by them all, is that they never joined the profession to get rich. instead to enable, empower and help people, but that as a reward is less felt through the demands put on them by those who make decisions without any understanding or knowledge of this sector.

    Clearly there was a need to make a change relating to tax and national insurance contributions, why should people not pay as others do? The issue however is the IR35 legislation as it is, is not fit for purpose and was implemented with a blanket ‘we cannot find a fair solution, so you’ll have to accept an unfair one instead”

    All this said, taking advantage of contractor by feeding them misinformation to make decisions that will undoubtedly come back to haunt them, is scrupulous & disgusting. An agency that operates in a way to leave its contractors massively vulnerable themselves should not operate within this market and should not be fed with public sector money.

    To cap this off, the article makes reference to alternative delivery models set up to run some council services. Whilst some services have been transferred to Trust’s, which moves them outside of IR35 as it is today, they become more attractive to work for as higher earnings are available. This will just create a system where surrounding authorities who have not so far failed to need such a transition will become disadvantaged in attracting staff, pushing them all also to inevitably fail. As for outsourced work through agencies taking on parts of children services for high profits, the end client is still the local authority and as such, these will also be a target of HMRC to come.

    • John August 24, 2018 at 10:02 pm #

      Interesting reply Mark

  3. joanna warwick August 23, 2018 at 8:11 am #

    Good article. no such thing as a compliant umbrella though as there is no regulation thus nothing to comply with. Agencies are obsessed with that word and its utter nonsense and a smoke screen luring people in. All those agencies are getting kick backs for recommendations so the whole thing is toxic. Much love to all those caught up in this.

  4. Tony Austin August 23, 2018 at 10:09 am #

    The public sector bodies need to show some respnsibility. They only use agency workers as a short term cost saving and to avoid employers’ liabilities. They should stop using agency staff and only recruit full or part time employees on a permanent basis and tax them under PAYE.

  5. sw111 August 29, 2018 at 9:43 am #

    Agree with the above comments.

  6. Tracy August 30, 2018 at 12:07 am #

    I have remained LTD and still work through agency although I am now financially worse of then my permanent colleagues. I am an experienced social worker who has worked for many different LA’s. I gave information for both of these IR35 articles. The only way I could continue to keep my faith and love for what I do is through working independently. It gives me the ability to walk away from LA where decision making is poor and not focused on the families we work with, if practices are poor work loads totally unrealistic so I end up working 50 hours for 37 hours pay or there is bullying and I feel it’s bringing me down I can leave, I have a get out clause where as many permanent workers will just go on long term paid stress leave. I chose not to have that option or security blanket I would rather leave. This isn’t about permanent worker V agency it’s anout the way the government treat us all and use us poorly. If being permanent was so brilliant we would all want to do it until then I need my get out clause to keep me sane

  7. Andrew August 31, 2018 at 10:28 am #

    There are some interesting comments above and I absolutely get Mark Tuvey’s point about the government’s introduction of an unfair system.

    But as someone who is employed part time and works independently the rest of the week I have a choice of setting up or joining some kind of scheme which will reduce my tax liability or being self-employed and completing a self assessment return annually and paying the tax that is due.

    It’s a choice and I do find it hard to understand the “I am earning less than permanent workers” stance. We can all chose how we work, weighing up the options, but with choice comes consequences. Cake and Eating?