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Is IR35 a potential tax time-bomb for pharmacist locums?


The employment status of locums has been a potential tax time-bomb for many years. Typically, locums have been treated as if they are self-employed, giving them certain advantages over employees who are taxed on a PAYE basis. However, the status of locums throws up a number of issues.


Calling a pharmacist a locum does not automatically confer self-employed status on a pharmacist. A few years ago, HMRC investigated a number of pharmacy businesses that had treated locums as if they were self-employed. There were particular issues over locums who had worked in the same pharmacy for a long time; or if they worked a regular pattern, such as every Wednesday. HMRC took the view that these locums were really employees and even if the locums had paid their income tax and National Insurance, the owners were exposed to the risk of penalties and interest on tax they had not deducted.


The way to avoid a dispute over the status of locums has often been to structure a proper contract between the owner and the locum. One of the hallmarks of self-employment is the entitlement of the locum to send a substitute if the locum cannot or chooses not to work on a particular day. However, a locum with a contract that allowed for substitution succeeded in claiming holiday pay from Paydens in 2013. The Employment Tribunal held that the entitlement to send a substitute was a fiction because if the locum could not attend the pharmacy on a particular date, Paydens, not the locum, would have found an alternative pharmacist.


Some years ago, I acted for a pharmacy owner who had entered into a contract with a limited company. This company agreed to provide the services of a superintendent pharmacist. The superintendent owned the company. When the superintendent quit, she claimed compensation for unfair dismissal. The Employment Tribunal decided that the superintendent was my client’s employee and that she was entitled to compensation.


Arrangements under which an owner enters into a contract with a company to supply the services of an individual are the very thing that IR35 is intended to tackle. The Treasury considers that someone who supplies their services through a company should not be in a better position than someone who enters a contract directly with the owner of the business.


If a locum’s services are provided through a company, that company will have to undertake an assessment of the pharmacist’s status. If an individual enters into a contract directly with the pharmacy owner, the pharmacy owner has to undertake the assessment. The assessment must be given to the locum with reasons. There must be a process that enables the locum to challenge the assessment.


Getting the assessment wrong can mean that the owner will become responsible for the locum’s tax and National Insurance.


David Reissner is a lawyer and also chair of Pharmacy Law & Ethics Association.


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