When making a payment to an individual it is important to determine the nature of that payment for tax purposes. If the payment is for work or services provided by the individual then it is likely, because of the Income Tax (Earnings and Pensions) Act 2003 regulations, that the arrangement will be considered one of employment by HMRC – and subject to tax and National Insurance accordingly.
It is essential, therefore, both for the University and the person receiving the payment, to identify employment status correctly and thereby avoid any risk from unexpected tax liability.
Note: As governing legislation is different, it is possible for an individual to be considered as employed for tax purposes whilst being not employed for employment law purposes.
Determination of employment status for the purposes of taxation is the responsibility of the employer (or ‘engager’) under the PAYE Regulations, 2003. It is not sufficient for the University, therefore, to take the assurance of a contractor that they are self-employed. The University is required to determine correct status and, if it is incorrect, HMRC will seek redress directly from the University rather than the individual concerned. Each job must be considered on its own merits.
Note: Employment status must be determined prior to any request or instruction for payment being made.
Departments are expressly forbidden to input any payments to individuals to the Financials system themselves.
Under no circumstances must payments to individuals be made from tills, petty cash or advances, except where expressly allowed via expenses.
For further guidance on making payments to individuals (or those operating through a personal services company (PSC) please refer to the "Personal Services Companies" page.