In line with tax legislation (IR35), any payment for services provided for the University’s departments or its subsidiaries will be paid through the University’s payroll unless the engager can certify, as evidenced from HMRC Check Employment Status for Tax Service (CEST) tool, that they are not liable for Pay As You Earn (PAYE) tax and National Insurance.
The policy applies across the University i.e. to all the University’s departments and also to the University’s subsidiary companies.
The legislation applies to all payments made on or after 6 April 2017, irrespective of whether they are a new contract or an existing contract.
Paying an individual engaged through a PSC via the payroll does not make them an employee and will not impact on headcount. However, if it is established that the work being undertaken would be more appropriately done through an employment contract then the normal routes for setting up, grading and recruiting to a post will need to be followed. Any additional posts will impact the headcount budget, therefore appropriate approvals should also be obtained.
If the assessment of the PSC concludes that the individual should be paid through the payroll, and PAYE tax and National Insurance deducted, then Employer National Insurance will be payable in addition to the new Apprenticeship Levy (from April 2017). VAT will also continue to be charged.
This is a complex area. Contractors working overseas may be affected by the new legislation, see HMRC for reference. In addition, there may be implications on their fiscal position in their host country. Departments should consult the Payroll for advice.
If there is no contract currently in place, then there is no need to assess the individuals. If the individual is engaged in the future, then each engagement will have to be reviewed at the time.
Self-employed individuals who are engaged directly and not through a PSC are not affected by these changes but their employment status should continue to be assessed using the HMRC Check Employment Status for Tax (CEST) tool.
Staff hired through TSS are already paid via the University payroll, so there is no need to declare them.
HMRC can impose a range of penalties on the University, Agency or PSC, depending upon where the error originated.
Once the employment status has been determined:
- If assessed as self-employed for tax purposes – send the invoice to the Payments Team with a copy of the Check Employment Status for Tax (CEST) outcome attached. Note, invoices for payment to individuals must not be entered into Oracle Financials by departments.
- If assessed as a PSC (the intermediaries legislation applies) – a PSC Payroll appointment should be set up on Core, and the invoice sent to the Payroll Team with a copy of the CEST outcome attached.
The CEST outcome should include the name of the individual and the name of the person completing the tool on behalf of the department. A new Quick Reference Guide (PDF) has been produced by Personnel Services.
Although HMRC may require certain PSC contractors to be paid as employees for tax purposes, they are advising that no employment rights will be associated with this. It is important that the distinction between being paid through the payroll and employment status is understood and that contractors understand that the University will not consider them to be employees and that none of the benefits available to staff will apply to them.
Yes. Where the umbrella company employs workers directly, then the new legislation does not apply.
Yes. It will be for the University rather than the agency to determine whether the contract falls within the new off-payroll rules, and to inform the agency and/or respond to any request for this information from the agency within 31 days of the request.
The University will pay VAT (if the PSC is VAT registered) and then deduct PAYE tax and primary Class 1 NICs from the fee.
As an example (figs are illustrative):
- The PSC invoices the University for £7,200 for services provided (£6,000 fees and £1,200 VAT)
- The University deducts £1,871 (£1,458 tax and £413 primary Class 1 NICs) which it pays to HMRC
- The PSC receives £4,129 for its services plus £1,200 VAT
- The University also pays secondary NICs on the deemed direct payment
- The University also pays the Apprenticeship levy of 0.5%
The technical guidance from HMRC clarifies the engager does not need to know about Student Loans as these will be declared by the PSC itself as part of their self-assessment for tax. Those collecting information from a PSC for Core set-up purposes should point out the question in the Starter Form in this case is irrelevant.
This is a question for Research Services. Please contact your Research Services divisional teams to discuss your cases.
Departments should continue to be mindful of principles of equal pay and value for money. However, if it is essential to the delivery of the service and within budget, departments may decide to continue contracting with individuals at a renegotiated rate.
This will be dependent on the individual’s contract, and advice may need to be sought from the University’s Legal Services office.
If you wish to consider setting up an employment contract, the normal arrangements will apply regarding setting up a post, advertising, recruiting, and appointment.
It is important to ensure that the HMRC Check Employment Status for Tax (CEST) tool is answered based on the facts of the contract and the reality of the arrangement in place.
The University has a duty to follow HMRC rules under which the University is responsible for determining status and not the accountant or the PSC. The PSC should submit a repayment claim to HMRC who will decide if the PSC is due a repayment.
The University has a duty to follow HMRC rules under which we would still have to make payment via payroll and account for PAYE tax and NICs. Termination of a contract would be the decision of the engaging department.