Employment Status and Payments in the Nature of Employment

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. See Employment Status Indicators (PDF) for more guidance.

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.

Status is clear-cut for individuals who have a full contract of employment with the University. These will be regarded as employees for tax purposes and paid via the University's payroll, with tax and National Insurance deducted accordingly. Note that this will extend to any additional work done by an individual already on the payroll, even if it is for another department.

Note: Individuals who hold honorary appointments in the University may also be considered as employees for tax purposes, even if they receive no monthly pay. If other benefits are provided (over and above normal access to University facilities and resources) then these may constitute payment in kind for work provided. In cases of doubt, advice should be sought from the Head of Payroll.

Joint appointments (usually individuals who hold contracts with both the University and a college) will be considered employees of the University for tax purposes only for the University element of their contract. College elements and college contracts will be handled by individual colleges as separate agreements.

Generally, full-time students and academic visitors to the University are not considered to be employees for tax purposes. Specific requirements exist, however, detailing allowable payments to such individuals. See web page on Payments to Students, Visiting Academics, and Volunteers for information regarding the specific requirements for allowable payments to these individuals.

Staff supplied by a registered employment agency are not currently held to be employees of the University - for tax or employment purposes - as long as their wages are paid directly by the agency concerned. From 6 April 2017 new legislation puts the responsibility of assessing the tax and National Insurance liability of payments to such staff with the University and not the agency. It is the responsibility of the department engaging staff in this manner to check their employment status and to let the agency know the outcome so they can make payments accordingly. Further information is available on our Personal Service Companies page.

Payments for the supply of staff are generally subject to VAT on the full value of the supply, i.e. the wages of the individual concerned plus any mark-up.

Staff on the payroll of other organisations, companies or registered corporate bodies will often supply work to the University or work closely with University staff. Examples include members of professional firms (management, legal, or financial consultants, builders, etc.) or of other bodies with which the University has a close working relationship (the NHS, other universities, etc.).

Staff in these positions will be treated as an employee of the other organisation and not of the University as long as any payments associated with their service are made directly to their organisation and not to the individuals themselves. It may be prudent to enquire on the nature of the contract that this individual has with the other organisation to ensure they do not fall within scope of the legislative changes relating to PSCs.

Note: an organisation must be a recognised or registered body in some way (registered company, university, charity, government department or agency, etc.) and not simply a trading style adopted by an individual. If in doubt, the arrangement should be considered in line with "Other Arrangements" below.

For all other arrangements, especially those styled as ‘consultancies’ or ‘self-employed’, it is essential to assess employment status for tax purposes prior to any payment becoming due and preferably before any contract is signed. You will find more about the principles around these assessments on our Personal Service Companies pages.