Payroll

Contracts with individuals for services:
Procedure for determining employment status

The University receives a number of invoices from individuals for specialist services. Before settling these invoices, we have to make sure that we are not contravening statutory regulations by paying the individual without deducting income tax.

This procedure is designed to ensure the correct treatment of these contractual arrangements. It replaces the current procedure whereby the individual is asked to complete a form with information about their personal tax status.

If we settle an invoice when the payment should have been made via payroll, the University would be held liable by Inland Revenue for the tax due. The Revenue would assume that the actual payment had been made net of tax and would calculate the tax accordingly, charging the University 28% on top of the value of the invoice (22/78). There might also be interest and/or a penalty levied by the Revenue. This is clearly a situation which the University would wish to avoid.

While Finance can check the status of an invoice once it is received, it would be particularly helpful if this issue could be borne in mind by Colleges and Directorates when they engage individuals to carry out work for them on a self-employed basis.

The following guidelines from the Revenue will help determine whether the contractual arrangement with the individual can indeed be regarded as self-employment, in which case payment can be made gross, or whether it is in fact employment, in which case payment should be made via payroll.

• Do they have to do the work themselves?
• Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
• Can they work a set amount of hours?
• Can someone move them from task to task?
• Are they paid by the hour, week, or month?
• Can they get overtime pay or bonus payment?

• Can they hire someone to do the work or engage helpers at their own expense?
• Do they risk their own money?
• Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
• Do they agree to do a job for a fixed price regardless of how long the job may take?
• Can they decide what work to do, how and when to do the work and where to provide the services?
• Do they regularly work for a number of different people?
• Do they have to correct unsatisfactory work in their own time and at their own expense?

Where the status is still unclear, step-by-step guidance is available on the Inland Revenue website:
www.hmrc.gov.uk/selfemployed/tmaemployed_or_self-employed.shtml

Further information is provided in the Inland Revenue Employment Status Manual:
www.hmrc.gov.uk/manuals/esmmanual

The Inland Revenue also have a useful tool to aid the decision making in such a situation. This can be found at:
Employment Status Indicator (ESI) Tool

By completing the on-line questionnaire a result will be given with an associated explanation. This can be printed out and used to justify treatment of the payment.

If, however, you are still unsure of how to treat a payment, please contact Anne Petrie, Payroll Manager, on ext 85595 who can assist in the decision making.

Last modified: Monday, 15-Nov-2010 13:46:34 GMT