When is a locum not a locum?

Employment status issues are always difficult for GP practices, not least because the onus is on them to ensure that workers are treated correctly for tax. If not, HMRC will look to the practice for employer national insurance contributions due, plus potentially penalties.

Unfortunately, practices often struggle to find reliable locums and so are keen to avoid upsetting the apple cart, potentially losing the locum to a ‘more lenient’ practice – as of course self-employment status has clear tax advantages for the locum.

Amongst the grey areas that cloud the issues there is one clear point: Where a GP is employed by a practice for his or her normal working hours, then any additional sessions worked should go through the payroll as ‘overtime’ and not be paid on a self-employed basis: even if the GP works as a self-employed locum elsewhere. Of course, the ‘overtime’ can be paid at any rate agreed with the GP, even locum rates (adjusted for the respective pension elements), but that doesn’t change the ‘employment’ requirements. Practices making payments to employed GPs on this basis will clearly need a change in pattern and of course this may not sit happily with employees – but NIC and penalties could add up to several thousand pounds and HMRC on/off payroll inspections are not uncommon.

So how can you tell if your locum is self-employed? Well, HMRC has a status test. Unfortunately, many of the answers to the test are capable of misinterpretation. Nevertheless, if filled out in good faith and retained, the test provides at least a defence against any penalties sought by HMRC.

Practices are told by the NHS that locums should not usually be engaged for a period in excess of six months, however, this is mostly for pension purposes. If locums are engaged short-term, pension contributions are paid over to the NHS using Forms A and B. However, if a locum is engaged for more than six months, the practice must notify the NHS so that pension contributions are deducted on the monthly NHS statement – much like salaried GPs.

The six month guidance unfortunately adds confusion to an already difficult area, and many practices take the pension guidance to relate to employment status. However, there is really little if any connection.  A GP providing short-term cover could still be an employee and for instance if a locum works set days each week for a long period, they could well be determined as an employee.

The employment status of locums can also impact their VAT treatment.  This can be somewhat alien to both practices and locums as VAT is not often mentioned in their healthcare settings. The main risks lie with the locum in this area.

Salary payments are outside the scope of VAT; however, payments to self-employed locums fall within the scope of VAT and may be exempt or standard rated (depending on whether the locum is VAT registered/requires registration as a result of their taxable turnover).

The VAT treatment of locums depends on whether they supply ‘exempt services’, or a ‘taxable supply of staff’.  Simply saying ‘the locum provides healthcare and that is exempt’ is not enough. Whilst it is important to look at the contracts in place between the locum and the practice, the parties must consider the economic reality.  This has been contentious and has resulted in a number of Tribunal cases, all of which tend to focus around the control, direction and supervision of the doctor’s services.

Where a doctor is considered to fall under the control, direction and supervision of the GP practice and operates within the framework of that practice, the supplies will probably be seen as a taxable supply of staff.  Depending on the level of payments made to locums not considered employees, this could result in the locum becoming liable to register and account for VAT at 20% on payments received.  This may result in the locum losing a sixth of their income paid by the practice or, if VAT is chargeable on top of the remuneration, an irrecoverable VAT cost for the practice. In reality, the locum usually bears the brunt.

Where a doctor does not fall under the control, direction and supervision of the GP practice, the payments may fall within the exemption and therefore not subject to any VAT.  However, this is often not clear and the onus will be on the parties to demonstrate to HMRC, if queried, that the arrangement qualifies as exempt.

Due to the nature of the work it is not usually control over clinical decision making that is important, but more operational control, such as determining when, where and what work the doctor carries out.

The following may help to determine the status:

1. Are the doctor’s working practices effectively the same as if they were employed by the practice?
2. Does the doctor have significant control over the services performed, such as agreed bespoke services with the practice and their own protocols?
3. Is the doctor responsible for reviewing the work rather than this being reviewed by the practice?
4. Does the doctor provide other support and help to those working under their direction and is this separate to any directions from the practice?
5. Does the doctor have input into the structure for the day and tasks carried out for the staff under their control and direction?
6. Does the doctor have their own medical indemnity insurance covering their activities and any activities of those falling under their direction and control?

As you can see it is important to consider the effect VAT and income tax/NIC may have on the structure of working arrangements between locums and practices.

If you have any questions please contact us or your usual PKF Francis Clark contact.