5. Employment and Payment for Services

See also:

5.1 Employment status and payments in the nature of employment

(a) Employment status

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 reculations, 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.

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 in this Expenses and Benefits Guide.

 

(b) University staff

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.

(c) Joint appointments

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.

(d) Students and academic visitors

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 section 6.

(e) Agency workers

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 website.

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.

(f) Staff who work for other organizations

Staff on the payroll of other organizations, 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 organization and not of the University as long as any payments associated with their service are made directly to their organization 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 organization to ensure they do not fall within scope of the legislative changes relating to PSCs.

Note: an organization must be a recognized 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 section (g) below.

 

(g) Other arrangements with individuals, including consultancies and self-employed

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 website.

‘Consultant’ and ‘Self-employed’ are both terms that are applied quite loosely, but in all cases the key to correct treatment for tax purposes is not what they are called but the nature of the service or services they provide. This can differ significantly from one job to another, even for the same individual. A person can be self-employed in respect of the work done for one organization, but employed (for tax purposes) for work done for another. It is necessary, therefore, to consider each job or contract in its own right.

Full details of the proposed work or activity should be documented, including the nature of the work, terms and conditions that will apply, responsibilities and expected outputs. This should be in the form of a contract or agreement which is then assessed against the University's process to determine employment status.

The process includes a number of decision trees to help departments decide how to treat payments to individuals, including consultants, visiting lecturers and external examiners.

When a payment is requested for an individual that has been assessed under this section, and for all cases, a copy of the appropriate decision tree should be attached to the payment instruction, marking the route taken and the outcome. (Payments to Individuals (198kb) is the most comprehensive). If a separate contract or agreement exists then this should also be attached to the first payment request.

All payment instructions made that do not clearly fit into sections (b) to (f) above will be reviewed by the Payments and / or Payroll Team prior to processing. If there is any doubt over correct treatment for tax purposes then payment may be delayed.

All payments that are made to individuals without deduction of tax are recorded and reported separately to HMRC on an annual basis.

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 in this Expenses and Benefits Guide.