How IR35 is killing the NHS

NHS has already lost a quarter of locums and run up a £4.3m tax bill because of IR35

With a month to go before the government implements its ill-conceived roll out of IR35 into the private sector, many contractors and employers are understandably getting concerned about the potential impact on their business.  However, the example of what happened in the public sector since IR35 was announced in 2016 offers some stark warnings about what might happen after April.

• Shocking fall of 20k self-employed medical practitioners between 2016 and 2018. A separate study in 2017 revealed 25% of healthcare locums left the NHS as a direct result of the IR35 changes 
• HMRC forcing NHS trusts to use their online tool to test every contractor’s status - yet it routinely gives the wrong answer as it ignores legal tests - NHS Digital was hit by a £4.3m tax bill as a direct result of this. 
• A significant drop in net pay for locums because NI hasn’t been factored into their hourly rate and they can no longer claim tax relief on expenses
• Many NHS trusts have taken the blanket approach of declaring all contractors to be within IR35, whether legally correct or not 

Stephen Mhiribidi, Head of Legal at the IHPA, who commissioned the 2017 study that found the NHS was failing to replace critical contract workers had this to say:

“HMRC has stuck a dagger in the heart of the NHS, and it’s hard to see how it can recover. Unless something changes, the taxman could soon be to blame for the end of free public healthcare in the UK.”

His words are dramatic, but there is a mounting body of evidence that NHS standards and even patient safety is being compromised by lower staffing levels, which won’t be helped by the loss of locums and critical healthcare contract workers. The NRLS National Patient Safety Incident Report Commentary for March 2019 gives the latest figures available on serious incidents reported in the NHS. You can see clearly the number of serious incidents creeping up year on year, with the largest two spikes occurring in the winter periods over the last two years.

Incidents are self-reported by hospitals and they argue that increases year on year reflect better reporting rather than a real increase, however, leaked figures reported in this article back in 2018 suggest there is a worrying trend. 

NHS England defines a serious incident as one “that occurred in relation to NHS-funded services and care resulting in unexpected or avoidable death, harm or injury to patient, carer, staff or visitor.”  As the infographic below shows nearly every category of incident has shown a percentage increase over the last two years.  This includes4.9% total increase with an 11.9% rise in incidents relating to implementation of care alone.

To put this into further context, 1,811,175 incidents were reported between October 2015 and September 2016 prior to the introduction of IR35.  In April 2018 to March 2019, this rose to 2,036,681 - a 12.4% increase in just under a four year period.

While a great many factors are involved in healthcare standards and this rise in incidents cannot be attributed to any one cause, a significant shortage of locums, nurses and IT contractors brought about by the government’s decisions on IR35 is putting more pressure on our already overstretched NHS. With Brexit also harming recruitment from Europe, it seems farcical to worsen staff shortages by further limiting the pool of people who can work for the NHS.

Dr Iain Campbell has been campaigning tirelessly against the IR35 changes, and presented compelling evidence to the House of Lords back in October 2018, but it  appears to have fallen on deaf ears. Our government has shown no sign of caring for the tens of thousands being forced into false employment without employment rights or the resulting struggle the NHS is experiencing to fill its rotas and care for patients.

If you take away anything from the above, make it this - if HMRC and its leaders are willing to let this happen to the NHS, as a contractor working in the private sector, they are unlikely to have your back.  You can expect to have your contracts challenged and potentially have the client you’re working for bullied into forcing you onto PAYE.  

If you are in this position, I urge you to get vocal to try and stop this madness.  You can lobby your MP (as I have personally done with my local MP, Caroline Lucas) and reach out to other people in your position to join forces. Crunch has its own free-to-join community, Crunch Chorus which you’re very welcome to join regardless of whether you ever intend to be a customer of Crunch.  As its founder, my intention was always to help people create sustainable businesses in the UK and I see it as my mission to lobby against the creation of a destructive and inhospitable environment for entrepreneurs.