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The short answer is yes. It’s perfectly acceptable. What tends to confuse the issue here is whether a locum is self-employed as a ‘Sole Trader’ or whether they are self-employed as a ‘Company Director’.
For the avoidance of doubt, it is the Sole Trader locum who must be added to a pharmacy’s payroll and paid as an employee. The reason for this was many locums operating as sole traders were invoicing Pharmacy’s and then never declaring this additional income in a tax return. The Revenue found that many were not paying tax on these earnings and as a result of these people actively trying to avoid paying tax, Revenue made a change to effectively collect the taxes that were rightly due.
This did not mean locums operating through their own limited company were affected by this change.
What further compounded the confusion was an article issued by the IPU which inadvertantly muddied the waters. This article stated that “if a locum is set up as a limited company and VAT registered, they are not exempt from the guidelines governing Employees / Self Employed status”. This is correct. No one is exempt from these guidelines.
However, they went on to say that as such the locum “should always be treated as an employee”.
The assumption many people made was this meant the locum must be an employee of the Pharmacy, but this would be a massively incorrect assumption.
The locum is required to be an ‘employee’, but not necessarily a direct employee of the pharmacy where the locum work is being carried out.
Nowhere in Revenues guidance does it say that if you are an employee/director of a limited company (either your own company or an umbrella company), that you must also be an employee of the pharmacy.
As long as the locum is an employee/director of their own limited company or an umbrella company structure, then they satisfy the “employee” test. The commercial agreement then is between the Locum’s Limited Company and the Pharmacy or agency. The pharmacy or agency pays the limited company (not the locum as an individual). The limited company then processes payroll, deducts the relevant taxes, pays them across to the Revenue Commissioners and gives the locum their net pay together with a payslip outlining all relevant tax deductions.
The most relevant guidance here is in Section 5 of Part 5.1.20 of the Tax and Duty Manual. The question posed here is this; “I own a pharmacy and have engaged a ‘locum’ pharmacist to work for me. What is the correct tax treatment of the payments I make to the locum?”
The answer given is “whether or not an individual is described, correctly or otherwise, as a locum is not the deciding factor. Based on Revenue’s experience to date in such cases, its view is that such ‘‘locum” pharmacists are engaged under a contract of service (i.e. they are employees) and the remuneration from such an engagement is subject to deductions at source under the PAYE system.”
So the above guidance states that the payments made to the locum must be taxed under the PAYE system. Locums operating through their own limited company are taxed through the PAYE system when that payment is made to them by their company. The locum is an employee of their own limited company and as such the payment made to them follows the rules.
No, not at all. Companies managed by Contracting PLUS have often been involved in Revenue Audits, especially after the completion of the Contractors Project by Revenue a number of years ago. In all those audits there was never any concern or question over the structure of using your own limited company or an umbrella company.
If that’s not enough comfort for you then I would draw attention to the comments made by Niall Cody, the Chairman of the Revenue Commissioners during an appearance in front of the Oireachtas Committee on 31 January 2019. This meeting was looking specifically at the issue of bogus self-employment.
He states “One of my colleagues was telling me about their nephew who recently began work in a particular sector and he signed various documents, including one to establish himself as a limited company. These were the terms of engagement and that is not bogus self-employment. It is a legal corporate structure”.
If this isn’t enough to convince you then you’ll be interested in knowing that we went directly to the Revenue Commissioners ourselves to ask about the structure. Their response to us was as follows (you’ll appreciate as this query related to a specific case I can’t use the specific company names);
“… the locum pharmacist is already involved in an employee/employer relationship with [Locum limited company] therefore the locum pharmacist would not be considered an employee of the pharmacy where relief is being provided.
The locum pharmacist would, therefore, be treated as an employee of [Locum Limited Pharmacy] and would have no relationship with the pharmacy where relief is being provided.
So there you have it. Very clear advice summarising that there is absolutely no issue in locum pharmacists operating either through their own limited company or an Umbrella Company structure.
If you are thinking about making the move to contracting in 2020 and would like more information then please contact Contracting Plus who will be more than happy to talk you through the process.
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