ESS/IR35 Overview of Paying for Services

Overview of Paying for Services

There are changes to HMRC legislation from 6 April 2017 that brings Limited Personal Service Companies, known as IR35 companies, under these regulations.  A personal service company is a limited company that typically has a sole director, the contractor/individual supplying personal services, who owns most or all of the shares.

Although these legislation changes are small, they will make a huge impact on the way we engage all service providers.  It means we have to look more closely at how we pay individuals, partnerships and limited companies for the work they do for us.  The changes are mandatory and we must follow HMRC guidance and ensure best-practice followed as penalties could be severe. 

Finance & HR have given issued University guidance on the intranet https://intranet.cardiff.ac.uk/staff/services/recruitment-and-management/guidance-on-establishing-employment-status

Which services are we looking at?

Any service where an individual or a partnership/company would primarily spend time carrying out the service.  Time spent would make up the majority of their charge to the University.

What must we do to comply?

Every time we engage a service provider we must determine if they are self-employed, an employee, an “IR35 off-payroll worker” or out of scope of the IR35 legislation.  It is what the service provider does for the University that determines their status, not how they want to be treated or how other businesses treat them.

We must use the HMRC’s Employment Status Service tool (ESS) to determine the provider’s employment status.

This must be done in advance of the service beginning, even if the provider has previously completed the same or similar service for us, we must confirm their status again.  This is our responsibility and not the service provider.

 

Who completes the ESS tool?

The online questionnaire should be completed by the person arranging the service.  This individual is often referred to as the engager or the end-client.  An administrator could also complete the online tool as long as they know the full details of the service being provided.  Senior staff at AHSS Finance can help you complete the form.

The assessment will also need to be signed off by your Head of School or School Manager. 

Any queries regarding the outcome from the tool should be emailed to the College Finance Team at ahss-finance@cardiff.ac.uk.  They will liaise with HR (Salaries), the HMRC or they may already know the answer.

The HMRC won’t stand by results achieved through contrived arrangements designed to get a particular outcome from the service. This would be treated as evidence of deliberate non-compliance with associated higher penalties.

Note – when considering the questions on providing substitutes, can the worker genuinely provide one?  And would we want to see CVs to ensure quality?

The HMRC’s ESS tool can be found at https://www.tax.service.gov.uk/check-employment-status-for-tax/setup


Once an ESS outcome has been determined, a provider is deemed to be:

• Self-employed - a Purchase Order (PO) must be raised in advance of work being undertaken via College Finance. Invoices can be submitted when the work is satisfactorily completed and they will paid under the University’s terms and conditions

• An Employee- your local HR support will decide whether the nature of the work requires an employment contract or can be considered under the casual worker process. Right to Work checks (A&I) must be carried out before any work commences.  Payment will be made by HR(Salaries) at the end of the month and be subject to tax and National Insurance (for both the employee and the University).

• An IR35 Off-Payroll Worker (this would only apply to partnerships or limited companies) - we must collect further information from the provider and then pass the company’s invoice with the relevant forms to HR(Salaries) for payment through a separate IR35 Payroll at the end of each month. Tax and National Insurance would be deducted at source from the supplier’s payment and the University would also be charged.  If VAT is due on the suppliers invoice then this will still be included in their payment.  Payments may take longer due to the payroll being processed once a month

• The intermediaries legislation does not apply to this engagement of the IR35 legislation means the provider can be paid via the standard purchase order and invoice process

• Unable to determine the tax status of this engagement – we may find that the tool is unable to give us a definitive answer. Although we can telephone the HMRC on the number given online, Accounts Payable will only act on a written response.  An email response from the HMRC will take a minimum of 15 days. 

                                                                     

HR (Salaries) have developed an ESS Referral form to capture further information on the supplier and the work to be undertaken.   They will make a decision or ask the HMRC.  The form can be returned to people@cardiff.ac.uk or the College Finance Team ahss-finance@cardiff.ac.uk who will liaise with HR for you. 

This may cause delays in engaging or paying the service provider.   The University’s default position is that if unsure, we should pay the worker as an employee or the company as an IR35 Off-Payroll worker.

How will the process work?

The following processes must be followed and considered prior to engaging a service provider. Typical examples of where we as a college engage services are outlined below:

Teaching (including tutorial, marking, dissertation supervision, etc)

See our flowchart: http://ahss-finance.cardiff.ac.uk/Knowledgebase/Article/View/101/13/essir35-teaching-flowchart

Visiting/Guest Speakers Fees

See our flowchart: http://ahss-finance.cardiff.ac.uk/Knowledgebase/Article/View/109/13/ess--ir35-guest-speaker-process 

If a visiting/guest speaker delivers core curriculum they must be treated as a part-time or casual lecturer. See Teaching example above.

In addition to an EXP3, an ESS questionnaire and form AH-GS1 must be completed by the engager prior to finalising the speakers .

Consultants & Other Services

This process must be followed prior to engaging a service provider.  No work must commence until the correct method of payment is established.

See our flowchart: http://ahss-finance.cardiff.ac.uk/Knowledgebase/Article/View/110/13/ess--ir35-consultants-and-other-service-providers