What do tax rule changes mean for social workers?
Changes to IR35 tax regulations have been met with interest by many in the industry, with social workers paying close attention not only to the April 2017 enforcement of new rules for the public sector, but also the April 2020 changes to how private sector contractors are taxed. Most impacted are locum social workers, many of whom are in the public sector and have adapted to working through PAYE models under the public sector rules. But what about those private companies that hire social workers and facilitate the evasion of IR35? And what exactly do the new rules mean for social workers across the board?
Changes and implications of IR35
A 2017 update to the IR35 taxation rules brought closer pay parity between permanent social workers and agency workers, despite the latter group not receiving holiday or sick pay or other workplace benefits. The rules essentially outline which workers act as genuine contractors - those who set their own conditions of work and are independent from the company - and who are acting as disguised employees while still benefiting from the tax breaks of a contractor. The tightening up of this regulation - designed to counteract tax avoidance - impacted many locum social workers who could no longer claim business expenses or lower their tax liabilities.
For social work, where local authorities have a firm reliance on locum social workers, the impact of IR35 has been felt widely. While the change has seen the narrowing of pay between permanent and non-permanent workers, it has also raised the issue of the over-reliance on agency workers within social services, and the instability this contributes to. Many hoped the new rules would entice people back into permanent local authority positions.
Indeed, some independent social workers have been so concerned about the impact on earnings that they have opted to move into the private sector or permanent roles, dissolving their limited companies. Many of these are making lateral career moves, still within the social work spectrum but outside of local authority roles. Others are continuing to work as contract social workers but are limiting the amount of travel they undertake for work, as many can no longer claim this expense back. Some are signing with umbrella companies to manage their payroll and potentially try to evade being caught under IR35, which is concerning from both an ethical and legal standpoint. While many umbrella companies are genuine and compliant, social workers should be wary of anyone offering tax conditions that sound too good to be true, as such a scheme can lead to significant legal and financial difficulty if you are found to have been non-compliant.
More change ahead
With the changes due to be implemented in the private sector from next year, locum social workers who have moved from public to private will be faced with another choice to make. For some, the commitment to social work as a career may not be financially-driven, and the appeal of locum agency work and the flexibility and control it offers will make it an easy decision to stay put. Others may reconsider the appeal of sick and holiday pay and stability that permanent work offers. For local authorities looking to attract back locum social workers who have left in the wake of IR35, it may be time to address caseloads, pay rates and development programmes.
Employers - who now have the onus of determining whether contractors fall inside or outside IR35 - should avoid treating all non-permanent social workers with the same broad brush, and instead consider each on a case-by-case basis. Meanwhile, social workers who are unsure of their status should check with HMRC’s employment status indicator and ask employers or recruitment consultants whether vacancies are IR35 compliant. Be wary of unscrupulous umbrella companies and consider using approved companies that have been audited externally and proven to be compliant.
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