This month (April 2017) saw the introduction of new tax reforms introduced by the HMRC. The changes to the IR35 legislation will directly impact locum or agency, social workers. Previous to these reforms, social workers were able to trade through a limited company and were, therefore, able to work and generate an income with the added benefits of being a limited company. This article explores how the new IR35 tax reforms will impact these social workers.
What were the benefits of being a limited company?
Previous to the IR35 tax reforms a social worker could operate via a limited company, this, for some, provided many advantages in comparison to a social worker who was employed in a permanent position directly by an employer. For example a social worker operating through a limited company could act as a separate legal entity, this also meant that as a shareholder of their limited company a social worker was able to take a wage for the service they offered as well as a separate dividend, with the tax rate for a corporate entity being just 20%, the social worker also had the opportunity to pay themselves the minimum wage rate so as to keep profits to a minimum. In short, a social worker who operated through a limited company was able to pay less tax than if they were a full-time employee and therefore had a higher take home salary.
This is not to say however that locum or agency social workers had all the benefits, in fact contrary to popular belief many temporary social workers worked longer hours, travelled long distances and did not receive holiday pay, sickness pay, pensions contributions and or other benefits that a full-time employee with a local authority may receive.
It could be argued that those social workers working through a limited company quite rightly deserved any advantages they were able to extract via this method of working.
What Impact will reforms have?
In short social workers can no longer operate via limited companies, this is because the HMRC says those receiving supervision, direction and control cannot be self-employed, this, of course, applies to Social workers.
The new changes state that the organisation paying you will be responsible for ensuring you are paying the correct taxes, this is usually a recruitment agency. Social workers who were previously operating through limited companies may see their monthly income drop by between £500 - £750.
What action should you take?
If you are a social worker operating under a limited company it is advisable you contact an experienced accountant and speak to the recruitment agency that provides you with employment.
Many social workers are now considering applying to work with an employer directly. We have many exclusive social work jobs available right here on workinsocialcare.com so register and start applying today.