The LDU’s guidance aims to foster a collaborative culture between locums and practices, and sets out the questions providers must consider before applying IR35.
Inappropriate application of IR35 rules could see locums lose 30-50% of their income to tax payments they do not have to pay, it warned.
Locums can use the guidance to help dispute cases where they feel they are being unfairly taxed or underpaid for their work, the LDU said.
IR35 rules are intended to prevent ‘disguised employment’, a form of tax avoidance where a worker who would otherwise be a normal employee works through an intermediary and pays themselves off the profits to make significant tax savings.
Changes made to the tax rules in April put the onus on practices to decide whether IR35 applies and deduct tax on locum earnings and rather than locums themselves, as was previously the case.
Locum tax rules
NHS Improvement initially advised providers that all locums, who often work through an intermediary such as their own limited company, should fall under IR35 rules, effectively treating them as practice employees.
This blanket approach would have caused many more locums to be taxed more on their earnings, potentially missing out on 30-50% of their income, the LDU warned.
NHS Improvement reversed this advice in May, accepting that the rules should be applied on a case-by-case basis.
LDU president Dr Benedict Itsuokor said: ‘The guidelines will help locum healthcare workers and NHS providers work together to achieve an amicable and fair solution to the IR35 tax rule.
‘Following the U-turn by NHS Improvement, each contract must be reviewed on a case-by-case basis, which is time consuming for both the NHS Trusts and locum healthcare workers.
‘The aim with this document is to streamline this process as much as possible and save time for all parties – and ultimately help to achieve a fair outcome for all involved.’