Contracting - how to ensure you stay within the law... - Veterinary Practice
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Contracting – how to ensure you stay within the law…

MATTHEW HUDDLESTON reports on recent changes in legislation and urges all parties involved to make sure that they are aware of the legal and tax requirements which accompany contracting

CONTRACTING is an extremely popular avenue for employees and an essential requirement for employers in the UK veterinary industry.

In fact, the UK uses a greater proportion of contract workers than any other country in Europe (4% of the total workforce). The main driver of this form of flexible employment, however, is rarely cost.

From the individual’s perspective, one of the biggest attractions is the flexibility to work when they want, where they want and for whomever they want. This means that work can fit around both lifestyle and time commitments, whilst enjoying pay sometimes in excess of what they would have received doing the same job on a permanent basis.

In research undertaken by the contractor payroll specialists, FPS Group*, 68% of people chose contracting because of the flexibility it offers over how and when they work. Many also use contracting as a stepping stone into an industry, building up their CV and skills before approaching work full time.

For veterinary practices across the country, there is a real need for shortterm, skilled and readily available labour to fulfil immediate business needs. This gives them the capacity to grow and shrink as required, leading to more profitable and efficient businesses.

The world of contractor payroll can be extremely daunting to the uninformed – sadly, it’s not as simple as just letting someone else deal with this on their behalf.

Contractors need to actively decide how to manage their affairs and the options are numerous – ranging from low-risk options with highly compliant offerings, to extremely high-risk and legally questionable solutions.

Potential contractors must find out about the legislation, tax rules and potential pitfalls that can impact on their payroll method of choice.

It is important to make the right decision, especially bearing in mind the current Government’s push to close down all tax avoidance schemes. This push includes the recent changes to legislation that particularly surrounds intermediaries (IR35) and the General Anti Avoidance Rule (GAAR).

If any contractors are not familiar with these terms, they should be. These pieces of legislation affect all temporary workers, particularly those who manage their income through their own limited company (sometimes called Personal Service Companies or PSCs) and those who act as sole traders.

IR35 is a regulation designed to crack down on people who should have been paying tax as an employee, but due to the existence of their PSC or partnership, they are claiming to be self-employed. If caught under this legislation, all tax and national insurance HMRC deems to be due can be demanded from the contractor.

GAAR is a “catch all” piece of legislation where, if the only reason for structuring a transaction (such as forming a PSC) is to avoid tax, HMRC then has the right to ignore the structure and tax it as it would have been originally.

Be aware of changes

All temporary veterinary staff, regardless of whether they are receptionists, nurses or surgeons, need to be aware of these changes to legislation. There have been a number of moves by the government to close any loopholes and ensure that current legislation is being enforced.

Tax avoidance has become an increasingly high-profile issue and there is an increasing pressure for companies to demonstrate that the contractors they engage are not avoiding tax in order to satisfy procurement requirements.

For those who are more risk averse and don’t wish to risk the future wrath of the tax man, umbrella companies provide a mechanism through which temporary workers can receive their pay net of all the appropriate tax and National Insurance deductions like any other employee.

By working through an umbrella company, contractors can have one employer and one tax code, regardless of how many recruitment agencies find them work or the number of surgeries they work in. In addition, they can claim for tax relief on their work-related expenses, potentially increasing their take-home pay.

Liberty Star Recruitment, a specialist in temporary and permanent veterinary staffing, recently reviewed its veterinary contractors and found that the majority are currently working though umbrella companies or their own limited company.

In general, they found that veterinary nurses tend to opt for umbrella companies and veterinary surgeons set up their own limited company. However, there are still veterinary contractors who work on a sole-trader basis, placing them and their employer at risk.

For veterinary practices, it is important to remember that they may be engaging contract staff in clinical, administrative, property maintenance or cleaning roles and that there may be implications for the way their staff are paid. This can be through an agency, direct employees of the practice, sole traders or working through limited companies.

Employing contractors is an efficient and profitable way of providing short-term, skilled work. Companies and contractors alike choose to do so, primarily because of the flexibility it provides.

However, all parties should make sure that they are aware of the legal and tax requirements which accompany contracting, and if they have any doubts or questions, they should talk to experts who will ensure that they won’t find HRMC chasing them in the near future. *State of the Contractor Nation report 2012.

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