In April 2017 the Government introduced changes to tax legislation which places more responsibility on public sector organisations who engage Personal Service Company (PSC) contractors. The new legislation (IR35) aims to ensure that individuals who work through their own company pay employment taxes in a similar way to employees, where they would be employed by the public sector organisation were it not for the PSC or other intermediary that they work through.
What is a PSC?
The generally accepted definition of a PSC is a limited company that typically has a sole director (the contractor) who owns most or all of the shares. The contractor’s PSC generally supplies professional services to end user clients, either directly or via an agency. The professional services are delivered by the contractor who is also the owner and director of the business.
How to manage PSCs
All departments should use HMRC’s new Check Employment Status for Tax service (CEST) tool whenever they engage a contractor or a self-employed individual. The name of the person carrying out the test on behalf of the department and the name of the individual assessed must be stated in the relevant section of the CEST test, even if this is not mandatory for HMRC purposes, prior to the tool being printed and attached to the invoice.
If the tool assesses that:
- Intermediaries legislation applies - set up a PSC Payroll appointment on Core-HR (see the Quick Reference Guide (PDF)). Submit the invoices to the Payroll Team, making sure the invoice has been signed by an authorised payroll signatory and the employee number and full cost allocation have been written on it.
- Intermediaries legislation does not apply - paid via Accounts Payable as a PSC on Oracle. Submit invoice to the Payments Team with the CEST decision attached. Please note, departments must not enter invoices from individuals onto Oracle Financials directly.
In some instances, it may be these contractors are engaged to design, deliver and assess/mark a course leading to an accredited/unaccredited Oxford qualification. Albeit under one contract, the tax liabilities generated by each task are different. Designing a course is usually deemed to be a true consultancy task and would not be taxed at source, while teaching and marking may be taxed depending on the level of the qualification and whether it is accredited or not. The engagers in the department may want to keep this in mind when drafting future contracts and ask us for further specific advice if needed.
The following guidance may be useful: