Michael Delaney examines the impact of the latest regulations on community pharmacists…
The traditional model of community pharmacists being employed by a large chain, a small high street business through an employment agency, or as in recent times through a network of GP practices has been extended by individual pharmacists and other healthcare professionals providing their services through their own personal service companies as an intermediary.
By practising in this way the arrangement can trigger obligations under the Off Payroll Regulations, otherwise known as IR35.
IR35 applies when the working arrangements are such that if the individual pharmacist provides their services directly, they would be regarded for income tax purposes as an employee of the client or hirer.
In such circumstances, the payments made by the client or hirer to the personal service company for the benefit of the pharmacist is treated as earnings from employment and subject to income tax, employer and employee national insurance contributions and also any apprentice levy.
However, many clients or hirers will be able to avail themselves of the small company exemption set out at section 382 of the Companies Act 2006 if two of the following are not met - namely their turnover is less than £10.2 million, their balance sheet is less than £5.1 million or if they have less than 50 employees.
In such circumstances, the onus will continue to be on the individual pharmacist or their personal service company to convince HMRC that the working practices or assignments are not governed by IR35 and thus subject to less favourable tax treatment.
Pharmacists continuing to practice in this way will need to demonstrate that their assignments with the clients or hirers are outside IR35 if they wish to avoid being taxed unfavourably.
The starting point for the individual pharmacist will be to input information anonymously into the HMRC online tool, Check for Employment Status Test (CEST) which requires the individual to input all relevant information so as to enable HMRC to give an indication as to whether their status in providing services is caught by IR35.
However, full disclosure must be given or otherwise HMRC will not be bound by such decision.
For an assignment or working arrangement to be outside IR35, the community pharmacist would be best advised to:
a) demonstrate that they are not subject to the supervision, direction and control of the hirer;
b) be paid according to achieving timescales, milestones and targets;
c) be responsible for any losses incurred as a result of their working practices;
d) provide their own equipment;
e) offer a suitable substitute if they are unable to undertake the work;
f) be flexible as to when and how the services are to be provided;
g) avoid exclusivity and restrictions on providing services to any one particular client.
It is obviously early days since the new Off Payroll Working Regulations were introduced on the 6th April 2021. Therefore, it will be some time before we can assess the impact of the introduction of the latest regulations, and how it will affect and impact the individual community pharmacist providing their services through their limited company.
Michael Delaney is an employment and recruitment lawyer at VWV. He can be contacted on 07909 912564.