Payment for services
Guidance to help departments identify when payments for services are required, how to engage the supplier, and how to select the correct route for payment
Payments may be made to individuals or their intermediaries (e.g. Personal Service Companies) for provisions of services. These can include occasional work such as one-off talks or a seminar series, assisting on a recruitment panel, performance or roleplay, delivered by staff, students or people external to the University. Often we do not think of these as providing services, but this is the substance of the engagement with the University.
Individuals may work through intermediaries, primarily personal services companies (PSCs). The generally accepted definition of a PSC is a limited company that typically has a sole owner and director (the contractor) who generally supplies professional services, either directly or via an agency. To manage the risk of these being used as a tax avoidance vehicle, HMRC has in place off-payroll working rules (IR35). These rules form the foundation for treatment of PSCs as explained in these pages. The PSC page has further information about using PSCs.
It is important to determine the nature of each payment to ensure that the tax treatment is correct. Depending on an assessment of the work to be delivered and the employment status of the service provider, the key payment processes for services are:
- Payroll process – Payments made to employees, workers, and Personal Service Companies falling inside the off-payroll working (IR35) rules. Tax and National Insurance (NI) are withheld at source and paid to HMRC by the University.
- Accounts payable process – Payments made to individual suppliers or Personal Service Companies falling outside the off-payroll working (IR35) rules. Tax and National Insurance (NI) are not deducted and it is the supplier’s responsibility to account correctly for tax due on the income received from the University.
Determining employment status
Any provision of paid services by an individual or their intermediary is treated as an appointment or engagement. Each engagement should be considered carefully to ensure that the right payment route is selected for that specific engagement. Service providers may have differing employment status for each engagement. The payment method for the engagement and the tax/NI to be withheld depends on the employment status for that engagement.
The University is responsible for determining the employment status of individuals providing services, not the service provider concerned. This determination is based on the nature of the work to be completed or services provided rather than generic classification as ‘consultant’ or ‘self-employed’. A service provider may be treated as self-employed by one organisation or for one engagement but it does not follow that they should be treated as self-employed in all circumstances. Employment status is assessed using the HMRC Checking Employment Status for Tax (CEST) tool.
The following steps should be taken to arrange for a service provider to be engaged and paid:
Departments should assess all contractors and individuals providing services, including those operating via Personal Service Companies (PSCs), when considering engaging an individual.
To determine the correct route for paying for services, review the Flowchart - Guidelines for payments to service providers. This is also available as a printable checklist (docx) for submission to the relevant department with any request for payment.
The flowchart was informed by the BUFDG ‘Common Roles Guidance’ . This provides useful guidance but completion of the CEST tool remains important.
If directed to complete the HMRC CEST tool you should:
- Include the name of the person completing the test on behalf of the department, even if not mandatory for HMRC. This should be the person who has a good understanding of the work to be completed;
- Include the name of the service provider being assessed, even if not mandatory for HMRC;
- Print the tool and outcome (if the outcome is undetermined please refer to the Flowchart for what to do next);
- Pass the outcome, including the reasons for the determination to the person or organisation you contract with (a copy of the CEST tool is sufficient);1
- Keep detailed records of the outcome, including the reasons for the determination and fees paid.
More information about the CEST tool and the factors it considers is available in the HMRC Employment Status Manual ESM11000 – Check Employment Status For Tax.
It is recommended that the CEST tool is completed for service providers in the UK or overseas. Although it is a UK test, it serves as a useful benchmark for the employment relationship and as an audit trail containing relevant information for any subsequent work required for the overseas service provider. Please refer to the International Working Arrangements Policy if the period of overseas work exceeds 90 days.
Note: Relying on the HMRC CEST tool
HMRC have confirmed that the CEST tool result can be relied upon provided the information entered is accurate. Manipulating the responses to influence the outcome of the CEST tool can result in a contractor paying a lower rate of tax than they should be paying and this could constitute an offence under the Criminal Finances Act 2017.
1 There is a requirement in all cases to issue a Status Determination Certificate to the supplier of services to show the outcome of HMRC’s CEST tool where this has been completed.
If the supplier of services appeals the outcome they must receive a response within 45 days (otherwise the worker’s tax and NI contributions will become the department’s responsibility). If you receive an appeal you will need to:
- Consider the reasons for disagreement given to you by the worker or agency paying their intermediary.
- Decide whether to maintain the determination if you feel it is correct and give reasons why - or provide a new the determination if you feel it was wrong.
- Notify the worker.
- Keep a record of your determinations and the reasons for them, as well as records of representations made to you.
Further information is available in HMRC's Employment Status Manual.
Once the employment status of the supplier has been determined, the flowchart can be used to identify the correct process for engaging the supplier and setting them up ready for payment once the work has been completed.
It is recommended that there is always a written contract in place for the engagement.
Employed for tax purposes:
- Casual worker engagement less than 12 weeks – set up a casual appointment on PeopleXD and issue with letter of engagement.
- Variable hours/fixed term employee engagement longer than 12 weeks – set up a post on PeopleXD issued with Chancellor, Masters and Scholars employment contract.
- Personal Service Company (PSC) assessed that off-payroll working (IR35) rules apply – set up PSC appointment on PeopleXD
Self-employed for tax purposes including PSCs where off-payroll working (IR35) rules do not apply:
The purchase to pay process should be followed and contract issued. There is a template consultancy contract available.
For small, occasional engagements (such as a talk), a simpler contract is sufficient, such as a letter of engagement or letter of invitation. This should contain clear details of the service/deliverable to be provided and the service provider, the timeframe or deadline, and details of the price to be paid.
Employed for tax purposes – payments made via payroll process:
- Casual worker – paid on basis of timesheet
- Variable hours worker – paid on basis of timesheet
- Standard hours worker – contractual payments made
- PSC assessed that off-payroll working (IR35) rules apply - 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.
Self-employed for tax purposes, including PSCs where off-payroll working (IR35) rules do not apply – payments made via the Payments Team (Accounts Payable process):
- Invoice - Expected for an established self-employed individual, consultant, PSC or freelancer (there is a template invoice available for individual consultants, which can be used if they do not have their own invoice format) and for payment requests over £1,000. Once authorised for payment, the invoice should be sent to the Payments Team in the Finance Division, with a copy of the flowchart output and CEST output attached.
- Off-payroll payments for services form (xlsx) - Where an individual is unable to invoice, the Off-Payroll Payments for Services Form can be completed by the individual requesting payment. This form should be used only for requests under £1,000, for amounts greater than this the service provider should issue an invoice. Once authorised for payment, the form should be sent to the Payments Team in the Finance Division, with a copy of the flowchart output (docx) and CEST output attached.
All payments that are made to individuals without deduction of tax are recorded and reported separately to HMRC on an annual basis.
Note:
Departments are not permitted to input any payments to individuals to Oracle Financials themselves.
Under no circumstances may payments to individuals be made from tills or petty cash (with the exception of payments up to £50 for medical volunteers).
Additional resources
Slides from the June 2023 P2P Process User Group meeting covering Off Payroll Working and the Payments for Services Process .
