“IT contractors working on NHS contracts are unlikely to trigger the off-payroll rules when they come into force on 15th September 2012,” according to Don Tomlinson, managing director of specialist recruitment agency max20. If his reading of the new rules is accurate, it means that IT contractors can continue to fill skills gaps on vital NHS IT projects without the threat of being forced onto Pay As You Earn (PAYE), or out of contract.
“Demand is soaring within the NHS for experienced IT contractors with commercial experience,” explains Tomlinson. “Those in most demand are exactly the kind of senior level genuine contractors running their own software development business who are most likely to be well outside IR35.”
And according to Tomlinson, three further factors are making the NHS a highly competitive client for IT contractors: “Contractors no longer require NHS experience to work for the organisation, rates are increasingly realistic and there are many cutting edge development projects to work on.”
Can agency contractors be within scope of the off-payroll rules?
Tomlinson maintains that contractors working for max20, and similar agencies, are providing a service to NHS clients and are not disguised employees: “Our contractors’ limited companies have no direct contractual relationship with the NHS.
“The contracts are between software development businesses and our agency. That the software developers happen to be one-person companies should not negate the fact that a ‘contract for services’ is in place and there is no suggestion of employment.”
The contracts are between software development businesses and our agency. That the software developers happen to be one-person companies should not negate the fact that a 'contract for services' is in place and there is no suggestion of employment
Don Tomlinson, max20
Tomlinson adds that the legitimate business status of such contractors is underscored by educating NHS clients about how contracting works: “The NHS is a fantastic employer with lots of employee benefits. Some NHS clients try to give contractors employee benefits or rights under the Agency Workers Regulations (AWR), which are quite rightly refused by the contractors themselves. This underlines the ‘in-business’ status and mentality that our IT contractors adopt.”
High-end contractors should pass the off-payroll rules
Based on guidance leaked to PCG earlier in the summer, for the off-payroll rules to apply, contractors must be earning over £219 per day, and/or be on a contract lasting six months or longer. This, says Tomlinson, immediately reduces the numbers of those affected.
“About 30% of our contractors are on day rates of greater than £219,” he explains. “The rest are mostly Umbrella company contractors in technician and helpdesk roles and who already pay income tax and National Insurance Contributions (NICs) at source.”
The off-payroll guidelines also require contractors to be defined as low risk using HMRC’s business entity tests. Tomlinson believes many senior contractors should achieve this. Those who can’t because the business entity tests are weighted in favour of contractors who substitute, should comfortably be able to provide the “assurance in a different way”, such as demonstrating that they are outside of IR35.
“We’ve not lost a single contractor to IR35 since max20 was launched twelve years ago. Our compliance procedures mean we only work with UK-registered limited companies, and not with offshore tax providers offering aggressive avoidance solutions,” he says.
The NHS needs IT contractors to maintain and improve service delivery
Tomlinson suggests that Max20’s turnover growth of 18%, to £5.7m, in its latest financial year demonstrates how badly the NHS needs IT contractors: “We only supply the NHS, no one else, and only with IT and computing contractors and technicians. In the first half of 2012 we placed nearly 200 contractors into new roles and secured over 600 contract extensions.
“Driving IT contractors out of the NHS, just when it has got to the point of offering realistic rates and welcoming contractors from other sectors without requiring previous NHS experience, might seriously compromise healthcare service delivery in the UK.”
And contractor demand is only likely to increase, following the development of Clinical Commissioning Groups and Health Informatics Services. “We’re seeing continuing demand strengthening irrespective of the general economic conditions,” adds Tomlinson.
He concludes: “The off-payroll rules are designed to force disguised employees to pay the correct amount of income tax and NICs. Genuine contractors, such as those we supply to the NHS, should be able to provide assurance that they are outside of IR35 and can continue to deliver essential healthcare IT services.”