New rules on limited companies for nurses and NHS staff

The government have introduced new rules on limited companies for nurses, doctors and other NHS staff. They are trying to reduce the number of people in the NHS using personal service companies (PSC) to get paid. They are doing this by changing tax rules around IR35 and how it gets assessed.

Why the government doesn’t like limited companies for nurses

Over the last few years there has been a trend towards nurses, doctors, physios and care workers doing agency work alongside, or instead of, regular NHS jobs. In most cases the agencies who give out this work ask people to form a limited company to get paid through. These are often known as personal service companies, sometimes referred to as PSC. This practice was most common amongst nurses. As a company formation agent The Company Warehouse has formed hundreds of limited companies for nurses who were working as contractors.

There are a number of reasons why the government is unhappy about this. First of all employing agency staff is expensive for the NHS so the government want to make it harder for the agencies to operate. They hope that by clamping down on the agencies they can push nurses back into regular NHS jobs which is cheaper for them.

As well as costing the NHS more money, the use of agency workers brings in less tax revenue for the government. When an agency pays someone through a limited company rather than a regular job they don’t have to make National Insurance or pension contributions. If used correctly the nurse can also pay less tax by taking money out of their company via dividends which are tax free for the first £5000. So, the government misses out on tax from the agency and tax from the nurse, which they don’t like.

What are the new rules?

There has been a rule around for a while known as IR35. This is a test that HMRC can do to see if someone using a limited company should really be employed directly instead. If a person is employed directly HMRC get more tax so this test can be used to make people switch. The exact rules around IR35 tests are fairly complicated but the basic idea is that if someone is just doing contract work for one business, and is told directly by that company what to do, they were an employee not an independent business. Therefore they should be getting paid, and paying tax as an employee, not as a limited company (meaning the government gets more money).

Public bodies have been required to do their own IR35 assessments for a few years, so see if contractors they are employing ought to be full employees. However, anyone hired through an agency was exempt from this and didn’t have to pass the IR35 test. Earlier this year the government changed the rules so that NHS trusts have to assess everyone regardless of whether they come through an agency.

This has shifted the burden of doing IR35 tests onto the healthcare agencies and most of the agencies have decided they don’t want the hassle. So, instead of doing the IR35 test for the nurses who they work with the agencies are simply telling people that they can’t use their own limited companies anymore.

Limited companies for nurses and other NHS staff are still perfectly legal but it is now much harder to get agency work like this. Most agencies are now recommending that people use umbrella companies instead. This still means that the agencies don’t have to pay tax as employers but it means that the nurses and other NHS staff take home less money from any agency work they do as the umbrella companies take a cut of everything they earn. Ultimately this might lead to more nurses going back to full time NHS work, or it might just mean they do the same work for less money.

If you have questions about using a limited company to work as a nurse, or any other type of work, give our business consultants a call on 0800 0828 727.

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