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NHS contractors will pay their own tax after government U-turn

Published on: 23 Sep 2022

From 2017 public authorities were required to determine whether a contractor was, in effect, an employee who should be taxed by the employer. The rules, known as IR35, were extended to the private sector in 2021.

Speaking as he unveiled sweeping cuts to personal and business taxation, Kwasi Kwarteng said: “We can also simplify the IR35 rules – and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.

“So, as promised by my Right Honourable Friend the Prime Minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”

One NHS finance director said the rules would not be difficult to unpick but highlighted the “wasted effort and red tape we put into complying”.

The off-payroll working rules aimed to cut down on tax avoidance by requiring employers to assess whether workers providing services through an intermediary such as a limited company were effectively employees who should pay more tax.

Guidance issued earlier this year warned of “substantial administrative implications” for NHS providers, who were told to “comply in full” with the regulations and assess the employment status of locum and agency staff.

In 2019 NHS Digital was hit with a £4.3m tax bill after Her Majesty’s Revenue and Customs ruled it had incorrectly classified contractors’ status and was liable for tax payments.

The changes, which had been previously hinted at by prime minister Liz Truss, will take effect in April 2023 and mean contractors will be responsible for determining how much tax and National Insurance they pay, according to the government’s “growth plan” published today. It said the move would “free up time and money” and minimise the impact on genuinely self-employed workers.

The chancellor also confirmed that the repeal of the health and social care levy, which was set to bring in £13bn, would not affect health service funding. It follows concerns that a new fund to ease the pressure on hospitals over winter announced by the health secretary yesterday would be drawn from existing budgets.