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We act for a client company which trades as opticians and which runs a number of shops. In order to cover all of the shops, our client uses a number of locum opticians who are currently treated as self employed.
Under the current regulations, the locums are paid by the National Health Service directly for NHS work. Our client pays them for any private fee work, after deducting costs for room hire, etc. and the locums provide invoices for the private fee work.
We act for a client company which trades as opticians and which runs a number of shops. In order to cover all of the shops, our client uses a number of locum opticians who are currently treated as self employed.
Under the current regulations, the locums are paid by the National Health Service directly for NHS work. Our client pays them for any private fee work, after deducting costs for room hire, etc. and the locums provide invoices for the private fee work.
With effect from 1 August 2005, the NHS will pay our client for the NHS work and our client will then have to pay the locums.
Our client is concerned that the changes in the way that the locums are paid for NHS work means that they will lose their self-employed status, and readers' comments would be welcome on this matter.
Query T16,666 — Shortsighted.
Reply by Abbey Tax Protection:
The status of the locum opticians will not be determined merely by how they are paid or indeed by whom they are paid; it is determined by the nature of the engagement.
HMRC will typically want to review the terms of any contract be it written or verbal and will also wish to discuss the actual working arrangements. There is no black and white definition of employment or self employment although the courts have ruled on a number of cases that provide precedents to apply to other individuals. It is necessary to look at the various aspects, some of which may point to employment and some to self employment and then give an overall view of whether, on balance, the weighting points one way or the other.
The main factors to consider are control, substitution and mutuality of obligation. Let us take each in turn.
Control. Each locum will be sufficiently qualified to be able to carry out the required duties and so there will be little or no control over how he carried out his duties; but who controls when, where and what duties are performed? Does the locum determine the times and venues at which he works? For example, could the locum refuse to carry out sight tests for housebound customers of the client? The less control that is exercised over the locum, the less likely the engagement is to be one of employment.
Substitution. For an employment to exist, there must be a contract of personal service. If the locum can send a substitute in his place, then it is not a contract of service; it is a contract for services and so cannot be an employment.
Mutuality of obligation (MOO). Is the client duty bound to offer future work and is the locum duty bound to accept? HMRC take the view that the irreducible minimum MOO exists when work is undertaken and payment made. Furthermore, although the client may say that there is no MOO looking forward, HMRC will have the benefit of hindsight if they carry out a review and may be able to say that whilst there may have been no MOO looking forward, if one looks back, the locum has been with the client for a number of years. Effectively, HMRC use hindsight to defeat the MOO argument.
Other areas that are considered are whether the locum works for other practices; can he make a profit from the sound management of his business or can he make a loss? Does he have any overheads, e.g. insurance, car, equipment, training costs, etc? Is the locum portrayed as part of the client's organisation? Does the locum invoice for work done and on what basis is the charge made, per test/day?
Assuming each locum already satisfies these tests to be treated as self employed, and on the basis of the information provided thus far, I do not think that because the payment from the NHS now passes through the client's hands would mean that the status of the locums would need to be changed. Having said that, it would be useful to know whether a contract existed between the NHS and locum and whether the locums were treated as employees of the NHS. How and by whom were the NHS invoices for the services provided? Also does a contract now exist between the client and the NHS and again how are the NHS invoiced?
It is not always possible to give a one-stop answer to status problems as each case will be judged on its merits dependent on the nature of engagement of the locum and the locum's other activities.
Reply by Isaiah:
The Special Commissioners' case of Specialeyes (Taxation, 4 July 1991, page 354) was determined in favour of the taxpayers — locum opticians — who were regarded as being self employed. Much has changed since then and there has been a general thrust by HMRC to classify as many taxpayers as possible as employees. In the current case, the department has passed the responsibility for determining status to the client company which trades as opticians and engages locums. In such circumstances, many companies refuse to become involved in status issues and simply make a decision that the individuals concerned are employees in order to save administrative problems and conflict with HMRC.
The company and its locums will have to decide whether or not to follow such a path or whether to apply what case law and practice there is regarding such engagements.
HMRC's Employment Status Manual provides some clues regarding this situation, but no direct answers. Paragraph ESM4062 regarding locum doctors distinguishes between a locum who covers for a doctor who is ill or on holiday (and who is normally self employed) and a doctor who in reality assists a doctor in general practice (more likely to be an employee).
Paragraph ESM4270 deals with locum pharmacists and a comparison of that information with the circumstances of the locum opticians here may be worthwhile.
The client company needs to devise, with specialist help, a standard form of contract for services for locum staff if both parties agree that self employment is advisable. The terms of that contract need to be carried out in practice. In this connection, the well-known badges of trade are relevant and important issues such as substitution, control, mutual obligation and being 'part and parcel of the organisation' come into play.
My feeling is that some of the principles set out in paragraphs ESM4062 and ESM4270 are important. A locum optician who works full-time for the company may well find it difficult to prove self employment. Similarly, locums who engage in management functions at the branches at which they work face the same problem.
Others who, perhaps, work part-time and confine themselves to professional optometrist duties may well be able to demonstrate self employment.
Extract from reply by Southern Man:
I wonder if these new payment methods are related to the new regulations requiring optometrists to be on an ophthalmic list of contractors or a supplementary list (see www.abdo.org.uk/aboutabdo/docs/OphthalmicLists.pdf).
As I understand it, NHS payments can only be made to people on that list, so depending upon the exact qualifications and circumstances of the optician they may or may not be included. Of itself, I do not think that this should change status. However, not all optician businesses will qualify for inclusion on these lists. For those that do not qualify, a 'grandfathering' system is allowed whereby an eligible person — who might be a locum who does so qualify — can be the 'front man' who receives the payment for the business (or even businesses). The Appendix notes that a 'front man' should have a 'trustworthy working relationship' with the owner of the business and adequate knowledge of working practices, etc. The appendix includes a draft agreement, which describes the optometrist as an 'employee' and the practice-owner as an 'employer'. One wonders if this in itself, or the fact that the locum in this way becomes 'part and parcel of the organisation', will change his status to that of an employee.
