Off Payroll Working and the implications for Academies
March 15, 2017
Intermediaries legislation (IR35) has been in place for a number of years now. It applies where you engage someone who operates through their own limited company (“personal service company” or PSC). The legislation applies where, had the PSC not been there, the relationship between the school and the worker would have been one of employer and employee. Where this was the case, the legislation required that the PSC pay out all its net income as salary or pay PAYE and National Insurance on deemed payment of salary.
There have been some fundamental changes to the rules which have effect from 6 April 2017. Where a PSC provides the personal services of a worker to a public body, it is that public body that will be responsible for deciding whether the IR35 legislation should apply. This change in legislation will apply for Academies and could be relevant where a consultant is used for an extended period or where an interim Headteacher is paid through a PSC. It will now be the responsibility of the Academy to determine whether the contract with the PSC is caught by IR35 legislation and whether PAYE and NIC must be deducted from payments to the PSC.
What to consider
In general , a genuinely self-employed individual is not under the control, direction or supervision of the client and is in business with a view to making a profit. In determining the status of individuals providing services through a PSC, the following are a number of the factors that should be considered:
- Is the contract for the personal services of a particular individual?
- Could the individual send a substitute to provide the service?
- Does the individual have the right to terminate the contract at any time?
- Can the individual choose their own hours of work?
- Does the individual have to report to a manager?
- Does the individual attend staff meetings or have an e-mail address at the Academy?
There are other considerations and there are a number of checklists available to help Academies in reaching a decision. HMRC has launched an optional online tool (Employment Status Service “ESS”) in March 2017 to assist in deciding whether the rules apply. The tool asks a number of questions about the work being undertaken and the circumstances and then provides a decision on whether the legislation applies. The checklist states that HMRC will stand by the result given unless a compliance check finds the information provided isn’t accurate. It also allows you to include the name of the individual completing the checklist.
If the rules apply
Where it is determined that the arrangement is caught by IR35, the Academy will need to
- Pay income tax and primary Class 1 National Insurance Contributions to HMRC. This should be done in real time, on or before the date of payment to the worker, in the same way as for employees.
- Pay secondary class 1 National Insurance Contributions and report them to HMRC.
- Make the payment to the PSC. This will be fee, plus VAT, but net of the PAYE and National Insurance.
The individual will not be entitled to statutory payments or be enrolled in the pension scheme.
What you need to do
- You will need to consider whether there are any potential personal service companies used and review the contracts in place.
- You will then need to decide if the new legislation applies and ensure that this decision is documented. Any checklists used to determine the status of the worker should be retained as evidence to support the decision.
- If they do fall under the legislation ensure that there is a system in place to ensure that PAYE and National Insurance are paid.
- You will also need to ensure that any new contracts are reviewed in the same way
If you require any further information, please do not hesitate to contact a member of the Academies team at Chiks.