Contractors' Questions: Is my NHS agency right to deduct employer's NI?

Contractor’s Question: Since April I’ve worked through a NHS-facing specialist staffing agency and work for a NHS trust. But the agency has started deducting Employer's National Insurance from my pay without notifying me.

This seems to be a straight pay cut -- without my negotiation or agreement, so am I within my rights to tell the agency I have no obligation to ‘pay’ Employer's NI?

Expert’s Answer: There is a number of possibilities here depending on how you are working for the agency.

i) Limited Company

If you are working on a public sector assignment and operating through your own limited company then, since April 2017, new legislation was introduced surrounding IR35. Traditionally, contractors have always been responsible for determining their own IR35 status, but the new legislation has shifted this responsibility further up the supply chain for workers in the public sector. In summary, the changes are:

• The contractor’s end-client is now responsible for determining the contractor’s IR35 status.

• If there is an agency in the supply chain and the end-client has determined that the contractor is inside IR35, the agency must deduct tax and National Insurance at source via PAYE for each payment processed to the contractor.

• If there is no agency in the supply chain, then the end-client is responsible for processing tax and National Insurance.

Therefore, the deduction of Employer’s National Insurance would be correct in this instance. Ultimately as the change is legislative, agencies and end-clients are required to make the relevant deductions. I recommend you speak with the agency or end-client to review the contract in place for the public sector assignment. 

ii) Umbrella Company

If you are working through an umbrella company where you are employed to carry out work on various assignments, then the umbrella company, as your employer, is responsible for deducting all necessary tax and NI at the point in which they process their pay to you.  The umbrella company will also deduct Employer’s NI from the invoice raised for the work carried out.

Therefore, in this instance the deduction of Employer’s National Insurance would also be correct.

iii) Direct Through Agency

If you are employed by an agency and your pay is processed via PAYE, then the agency is responsible for deducting all necessary tax and NI at the point where they process their pay to you. As the change is legislative, agencies and end-clients are required to make the relevant deductions. I recommend you speak with the agency or end-client to review the contract in place for the public sector assignment. 

The expert was Derek Kelly, the chief executive of the Optionis Group, which includes SJD Accountancy and Parasol.