Locum NHS nurses have seen their net income slashed by roughly a third, following HMRC’s disastrous public sector IR35 reforms and the NHS’s unlawful application of the new rules.
Blanket IR35 assessments have made it impossible for NHS nurses to secure outside-IR35 status. Rate caps and the unlawful deduction of employer’s National Insurance (NI) from nurses’ rates have compounded matters, meaning that, for many, long distance assignments are no longer a viable option.
“This reduction in hours worked has meant many doctors and nurses are reporting ever-worsening staffing problems, which pose a serious danger to patient safety,” comments Dr Iain Campbell, Secretary General of the Independent Health Professionals Association (IHPA).
The IHPA is currently calling for an urgent inquiry into IR35’s impact on patient care. This comes after more than 10,000 excess deaths were reported during the first seven weeks of 2018, none of which were related to the weather, influenza or an ageing population.
NHS wrong to assume all nurses are caught by IR35
Though the IR35 reforms require that all contingent workers be assessed individually, the NHS has adopted a blanket approach whereby it assumes that all locums are within the legislation’s scope.
HMRC has encouraged this approach by informing NHS Trusts that locums are within IR35. However, according to ContractorCalculator CEO, Dave Chaplin, nurses are required to exercise their own clinical judgement and this, in itself, indicates that, in many instances, they wouldn’t be caught:
“To suggest that nurses are heavily controlled as to how they work, and thus subject to IR35, just because they have to follow strict health and safety procedures, is not true. When a new mother begins haemorrhaging after birth, the nurse doesn’t consult a manual to find out what to do. They have to decide which of many options to take, who to call and when to alert the theatres to prepare for a possible emergency operation.”
Nurses lose a third of their income due to IR35 reforms
The public-sector rules require a hiring firm to pay employment taxes in addition to the fees paid to the worker. Instead, many NHS Trusts are engaging locums via umbrella and payroll companies in arrangements where the 13.8% employer’s NI liability is deducted from the workers’ pay. This results in an effective reduction of wages before employment taxes have even been paid by the nurse.
“The additional squeeze that employer’s NI creates, when passed onto locums, really does add insult to injury,” notes Campbell, who also highlights that many NHS Trusts are additionally offloading onto the nurse the Apprenticeship Levy, which is intended to be a tax on businesses with a turnover of more than £3m.
Chaplin adds: “HMRC has claimed that the reforms only ask people to pay what they should have been paying anyway. Before the changes, the difference between the amount of tax deducted from contracting and employment income as negligible. Now, locums have taken effective pay cuts of a third as they are forced to effectively pick up the NHS's tax bills which the legislation was designed to make them pay.”
Public sector IR35 reforms: the fiscal impact on locum nurses
The NHS’s reliance on locum nurses, many of whom travel across the UK and stay in hospital accommodation and hotels for work, is well documented. The financial impact of the reforms on these nurses is best demonstrated by comparing earnings before and after the changes to IR35, using an illustrative example:
A nurse working outside of IR35 on £30 an hour will earn £300 for a 10-hour shift. Having travelled to the location, the nurse stays in a hotel at £60 per night, the cost of which is claimed as an expense, leaving £240 in after-expenses earnings. Tax is then deducted at a rate which is roughly equivalent to that of an employee, leaving the nurse with £183 for a day’s work.
Following the reforms, the same nurse is now deemed to be ‘employed for tax purposes’ by the NHS, which is also deducting its employer’s NI liability from the nurse’s rate, resulting in an immediate reduction in wages.
Following this unlawful deduction, the nurse now has pre-tax daily earnings of £262, which reduces to £182 once employment taxes have been deducted. The nurse can no longer claim any expenses, meaning they must foot the £60 hotel bill themselves. This reduces their earnings for the day by a third to £122.
NHS patient care into crisis: how much is IR35 to blame?
One third is just a ballpark figure, and as Campbell explains, some nurses are having their post-tax income slashed by as much as 45%: “Hospital accommodation can cost nurses more than £9,000 per year – worse if they stay in hotels. Travel is also a considerable cost, especially for those who travel between different sites during the week.”
This drastic cut in take-home pay has inevitably resulted in increasing struggles to source locum nurses, and hospitals around the country are evidently short-staffed. Last month, a hospital chief executive came under fire for banning his employees from admitting to patients that wards were under-staffed.
“There were also more than 10,000 excess deaths reported during the first seven weeks on 2018, compared with the average for the previous five years,” adds Campbell. “Urgent work is needed to establish how much the NHS’s adoption of the IR35 reforms and the subsequent heightened staff shortages have impacted this.”
‘Tax on the NHS’ isn’t helping anyone
“HMRC introduced these reforms to clamp down on supposed tax avoidance among contractors,” notes Chaplin. “If anybody is avoiding taxes now, it’s not the people hired to deliver public services, but rather the public sector itself.
“The financial hit has meant many nurses have been forced out of work. This means, ironically, in addition to a severe decline in patient care, less tax is being generated. Bravo, HMRC.”
Chaplin concludes: “The desperately sad aspect of all of this is that the Chancellor could have just agreed to pay the bill rather than oppressing the workers, as the entire amount would have circled back to the Treasury anyway. Instead, we are left with what is effectively a massive tax on the freelance staff who work in the NHS, and a public service in crisis.”