It is now a requirement for public sector entities, such as academies, to report payments to certain off-payroll workers to HMRC and deduct tax and national insurance as though they are employees.
This requirement comes as an update to the IR35 anti-avoidance legislation, introduced in 2000, which focuses on workers who use an intermediary, such as a personal service company, to be paid for work.
The structure of using an intermediary is generally a more tax efficient way of remuneration so the purpose of this legislation is to prevent avoidance whereby under normal circumstances this worker would be considered an employee.
What does this mean for the academy?
Since April 7 2017, where the academy engages the services or continues an engagement of an individual operating through an intermediary, for example a limited company, the academy is responsible for determining the employment status of the individual had the intermediary not been present.
Where a worker is engaged through an agency, you must respond to requests for determinations of employment status made by the agency within 31 days. It is then the agency’s responsibility for operating the legislation and making payment of PAYE and NIC.
It is imperative that you take reasonable care when making your decision and that you keep a record of the decision made.
Where you have established that the academy has an employer/employee relationship with an individual operating through an intermediary, other than an agency, the IR35 rules apply and you will be required to deduct PAYE and NIC from the amount payable to the intermediary. This must be reported through payroll and payment of PAYE and NIC must be paid by the normal PAYE due date.
Although the intermediary will be added to the payroll of the academy, it becomes a “deemed” employee for tax purposes only. Neither the worker nor the intermediary will be entitled to employment rights such as pensions or holiday pay.
The employment status test
In determining the employment status of an individual, HMRC consider the following questions:
- Is the worker required to provide their own personal services or are they able to offer a substitute or contract work?
- Is the academy obliged to offer work and is the worker obliged to do this throughout the contract?
- Does the worker have the right to terminate the contract at any time? If so, please consider the notice period.
- Does the worker have autonomy of their methods of work?
- Does the worker have to report to a manager who supervises their work?
- Is the worker entitled to choose their hours of work?
- Does the worker use their own tools and equipment to carry out the services?
- Does the worker quote on an assignment basis or are they paid for whatever work is done?
- Is the worker financially responsible for any mistakes that are made, such as correcting defects?
- Does the worker need to obtain permission to take time off?
- Is the worker subject to any internal rules and regulations of the academy that are similar to those that apply to actual employees of the academy, e.g. does the worker claim for reimbursed expenses using the academy’s own expense claim forms?
- Does the worker’s company have business insurance such as public indemnity or professional indemnity?
- Has the worker ever been an employee of the academy? If so, is he/she providing the same services as before?
- Is the worker entitled to use any staff-only facilities?
- Is the worker clearly identifiable as a contractor when attending the academy and treated as such? E.g. attending staff meetings, staff social events, having a school email address.
- Does the academy prevent the worker from doing work for other organisations as part of the engagement?
- Is the worker entitled to holiday pay, sick pay or other employee type benefits?