The NHS changed its previous IR35 blanket rules to place all locum and contractor staff inside IR35 in an update published yesterday.

The update, ‘Working through intermediaries: IR35 update’, shows that the NHS stated they had ‘anticipated that providers would need to ensure that all locum, agency and bank staff were subject to PAYE and on payroll for the new financial year’. However, the NHS also stated that blanket IR35 determinations were ‘not accurate’, and now plan to carry out IR35 decisions ‘in a fact-specific way’, stating that decisions ‘should be applied on a case-by-case basis, rather than by a broader classification of roles.

“That an organisation of the sheer size and influence of The NHS has revealed it is to re-think its approach to IR35 decisions is great news for all public sector contractors and the public sector itself,” Qdos Contractor CEO, Seb Maley, said. “Prior to recent reform, a staggering 85% of contractors stated they would stop working in the public sector should they be placed inside IR35. And contractors are vital components of all major public sector projects, particularly The NHS.”

“The final IR35 legislation clearly stated that ‘reasonable care’ had to be taken when making decisions over the IR35 status of public sector contractors. Put simply, this means that public sector employers and agencies should not make blanket determinations,” Maley said. “Going forward, assessing contractors on a ‘case-by-case’ basis will prevent them all being unfairly tarred with the same brush, and will only go to benefit The NHS, and hopefully set a marker down for every public sector organisation.”

Dave Chaplin, CEO and founder of ContractorCalculator, also commented, “This is a massive U-turn by the NHS which had previously applied a blanket ban on contractors, insisting that every contractor was caught by IR35 and therefore should be put on payroll. Since April, many public sector firms have discovered that blanket rules have had a huge negative impact and highly skilled contractors have been either leaving the public sector in droves, or have cost the public sector more to keep contractors and locums on.”

“We have heard countless stories of private firms trying to lure locums to the private sector only for the NHS to increase the locum’s rates to counter the effects of blanket decisions. The IR35 reforms have been tantamount to a massive extra tax on the NHS and have led to utter chaos.

Chaplin also commented on the HMRC IR35 tool. “There are many cost effective alternatives available for IR35 testing, and we encourage the NHS to now take ‘reasonable care’ when hiring as the legislation intended. A common sense approach is what is needed now to avoid further meltdown in the NHS and other public services.”