Guidance - Determining the Employment Status of Service Providers

1. Introduction

The University is committed to engaging Service Providers in line with relevant UK legislation. University employees responsible for engaging Service Providers must ensure that such services are engaged in a way that is compliant with such legislation and does not facilitate any form of tax evasion.

This procedure provides guidance on determining the employment status (including for tax purposes) of individuals who will be providing services to the University. The outcome should then be used to inform how the individual is engaged and paid.

Should HMRC judge that the University has not engaged and processed the payment for a service provider on an appropriate basis then the University will be liable for any outstanding employee Income Tax and NICs, employer NICs, Apprenticeship Levy plus applicable interest and penalties. The University may also be deemed to have committed an offence under the Corporate Criminal Offences Act 2017 and face prosecution and/or an unlimited fine.

It is important that those engaging Service Providers follow this procedure in full, including the submission of all required documentary evidence. Any failure to submit the required evidence will result in the process being halted until such evidence is provided.

It may be appropriate in some cases, particularly when consideration is being given to engaging someone as a casual worker and/ or employee, to read this note in conjunction with the University’s Extended Workforce Policy.

1. Introduction

This procedure provides guidance on determining the employment status (including for tax purposes) of individuals who will be providing services to the University. The outcome should then be used to inform how the individual is engaged and paid.

It may be appropriate in some cases, particularly when consideration is being given to engaging someone as a casual worker and/or employee, to read this note in conjunction with the University’s Extended Workforce Policy.

2. Service Providers

“Service Providers’ are individuals who provide their services personally, either on a freelance basis or via an ‘intermediary’. An intermediary is essentially a link between the University and the service provider, such as their own limited company (known as a “personal service company” (PSC)) or when engaged through a partnership. These individuals typically identify as self-employed and such models are often used by IT consultants, project managers, business analysts and other suppliers of professional services. Within the Higher Education sector, this model may also be used to engage specialist lecturers on an occasional basis.

The Intermediaries’ Legislation (also known as IR35) sets out the rules which affect tax and National Insurance contributions when certain service providers are contracted to work for a client, particularly when this is through a third party (intermediary), such as their own limited company.

Whenever a service provider is to be engaged, the University must determine whether or not they are working, or will be working, in a manner similar to an employee. Where it is stablished that the service provider is ‘doing a similar job, in a similar manner’ to that of an employee, then the University must calculate and deduct employee Income Tax and National Insurance Contributions (NICs) from the individual’s invoice prior to processing. The University will also be required to calculate employers NICs and Apprenticeship Levy and pay these over, along with the employee Income Tax and NICs, to HMRC via the monthly Real Time Information (RTI) process.

Any budget holders who are engaging with individuals to provide services to the University should ensure that they follow the process outlined below prior to any engagement being confirmed and definitely before any work is carried out. This applies to the engagement of any service provider, including UK nationals working/living overseas, foreign nationals living/working in the UK and foreign nationals living/working abroad, as it is the nature of the intermediary in each case that will determine the employment status for tax purposes.

Engagers should also adopt a fair approach to identifying potential suppliers and may be asked to confirm why a particular supplier was identified above other options.

3. The 'Check Employment Status for Tax' (CEST) Service

To support staff sourcing and appointing external service providers in determining the employment status of the service providers (including for tax purposes) HMRC have developed an online Check Employment Status for Tax (CEST) tool.

The CEST tool provides HMRC’s view of the employment status (for tax purposes) of a particular engagement. It asks a series of questions about the circumstances, before providing an indicative determination on whether or not the engagement should be classed as employed for tax purposes.

The tool can reach a number of outcomes as listed below:

  • The Intermediaries Legislation does not apply to this engagement
  • This engagement should be classed as self-employed for tax purposes
  • Unable to determine the tax status of this engagement
  • This engagement should be classes as employed for tax purposes 

One of the key questions that the CEST tool will ask is:
‘Is the worker or their business an office holder for the end client?’

For the purposes of the Intermediaries’ Legislation an ‘office’ is a permanent substantive position which exists independently from the person who fills it, does not receive regular payment and does not exist at the discretion of the organisation. For example, an individual carrying out the role of Consultant, Visiting Lecturer or Occasional Lecturer would not be regarded as an 'office holder' as the role could be created or removed according to the needs of the organisation. Statutory appointments such as that of a board member or Trustee are examples of 'office holders'. On this basis, in typical circumstances the answer will be 'no' to this question.

It is essential that the tool is completed accurately, therefore any uncertainty over the meaning of particular questions within the CEST tool should be raised with the appropriate local HR Team in the first instance.

4. Procedure

The procedure below outlines the typical process to be followed by the University when determining the employment status of a new service provider.

  1. The budget holder or manager (the engager) identifies a potential service provider.
  2. Before confirming any engagement with a service provider, the engager should complete the Check Employment Status (CEST) Tool. The tool features self-contained guidance; however advice can be sought from HR or Finance if necessary.
  3. The output from the tool should then be saved as a PDF*, then emailed to the relevant local HR Team along with a completed copy of Form - Service Provider Task Brief (this includes further basic details of what the piece of work will entail) and any other relevant supporting documentation. The HR Team will then review the outcome and endorse or action accordingly via email, with further discussion taking place with the engager as required.

    (*To save as a PDF, click ‘print this page’ on the results page, then in the ‘Print’ options box click the ‘Change’ button under the ‘Destination’ section, then select ‘Save as PDF’, then click the blue ‘Save’ button)
  • The specific outcome of the CEST tool will determine the action required as per below:

'The Intermediaries Legislation does not apply to this engagement’

Once endorsed by HR, the engager should send the following to procurementhelpline@glasgow.ac.uk

Failure to provide any of the above evidence will result in the process being delayed.

The service provider can then be established as a supplier and any supplier invoices can be paid gross.

 

 


‘The engagement should be classed as self-employed for tax purposes’

Once endorsed by HR, the engager should send the following to procurementhelpline@glasgow.ac.uk

Failure to provide any of the above evidence will result in the process being delayed.


‘Unable to determine the tax status of this engagement’

Further advice should be sought from the relevant College/US HR Team who should seek advice from the Head of Pay & Pensions.


‘This engagement should be classed as employed for tax purposes’

  • Income tax and NICs will require to be deducted from the supplier invoice prior to payment. In such circumstances, the following should take place:
  • The engager should discuss the outcome (and share the CEST tool output) with the service provider at an early stage (particularly before any invoice is issued or before work is performed/undertaken) to ensure that they are aware of the potential impact on any payment they might receive from the University. It may be appropriate to outline potential options as per below.
  • Consideration should be given, in conjunction with HR support, as to whether or not an employment contract or casual worker arrangement would be more appropriate in line with the University’s Extended Workforce Policy.
  • If it is decided that the issue of a contract of employment or a casual worker arrangement would be appropriate, then this should be established in line with the procedures outlined within the Extended Workforce Policy and normal recruitment procedures.
  • If it is decided that it would still be appropriate to set the service provider up as a supplier, then the reasons (for the decision to class the engagement as employed for tax purposes) should be confirmed to them by email using the Template Email - Notification of CEST Tool Outcome as a guide. The Form - Starter Checklist for Suppliers should also be sent at this stage, for the supplier to complete and return as part of the new supplier setup process.
  • The engager should then arrange for the following to be sent to procurementhelpline@glasgow.ac.uk:
    • new supplier request (completed by a trained Agresso Purchasing Officer)
    • the CEST tool outcome
    • the Form - Service Provider Task Brief
    • the HR approval email (with explanation of why a different employment arrangement is not applicable)
    • a copy of the letter/email notifying the service provider of the tool outcome
    • any other relevant covering emails or information
  • Failure to provide any of the above evidence will result in the process being delayed.
  • Income tax and NICs will then be deducted accordingly on payment of any supplier invoices.

In any other case where a service provider requests a written response to explain why a particular outcome was reached (i.e. in scenarios where this has not already been carried out up front) then the University (specifically the engager, or the individual who would have been the engager in cases where the Service Provider is not engaged) is obliged to provide a written response within 31 days. The Template Email – Notification of CEST Tool Outcome can be adapted for this purpose.

If no response is provided within this 31 day period, the University will become responsible for accounting for tax and NI contributions.

Where labour is being supplied through a recruitment agency, the engager should ensure that the agency are informed that the work falls within the scope of the IR35 legislation.

Payments to service providers are processed by the Finance Department in accordance with current HMRC guidelines.


5. Status Disagreement Process

Where a potential Service Provider disagrees with the determination (after having received feedback, including the output from the CEST tool) then they may invoke the status disagreement process as outlined below: 

  • The Service Provider should in the first instance make representations to the relevant local HR Team, stating that they believe the CEST tool output to be wrong and explaining their reasons for this belief.
  • The University will then form a Status Disagreement Review panel (Typically the Head of Pay & Pensions and the HR Policy and Employee Relations Lead) to review the relevant documentation (including the Service Providers statement) within 45 days and respond to either: 

1. Confirm that the original outcome is correct and provide reasons for this. There is no further right of appeal beyond this stage.

 OR

2. Confirm that the original outcome has been revised and provide a new determination statement (following which the process would continue from the relevant stage above)

 

  

Human Resources
September 2019