With effect from 6 April 2020 schools will need to be aware of changes to the rules around IR35 and off-payroll working.
IR35 is a piece of legislation introduced in 2000 to tackle the avoidance of employment taxes and National Insurance contributions. These rules specifically apply to contractors who invoice the school and are providing personal services via companies or partnerships (usually known as personal service companies or PSCs). It is important to note that they don't apply where individuals are contracting as self-employed individuals (although these arrangements are also coming under stricter scrutiny).
IR35 requires that employment-status is assessed to determine whether the contractor should be deemed to be an employee for tax purposes. If an individual is deemed to be employed for tax purposes then income tax and NICs must be paid as though the contractor were a direct employee.
The change which is being introduced to private sector organisations from 6 April 2020 is that the responsibility for ensuring compliance will fall on the school (or entity using the services) and the school will also be responsible for making any required tax and national insurance deductions.
The government has introduced an online checking tool (known as CEST) which can be used to determine status. HMRC have advised that they will be bound by the outcome of the assessment (as long as the correct information is input).
In order to comply with the new rules and mitigate the risk of liability arising under them, schools should:
- Identify any contractors providing services through companies or partnerships.
- Assess whether they may be intermediaries or PSCs falling within this regime. If it is unclear you may wish to write to them to seek information as to whether they are caught.
- Establish with any agencies or contractors who provide staff whether they directly employ individuals or if they contract with them.
- Undertake an initial risk assessment and prioritise arrangements where on the face of it an individual is providing services and is subject to the school's control.
- Determine the PSC contractors' status using the CEST online tool and seek professional advice if there is any doubt over status.
- Retain a copy of the determination and notify the contractor.
- If an arrangement is one of contractor (not deemed employment) keep a record of this with the contract. Ensure systems are in place to regularly consider the status during the life of each PSC contractors' assignment. Note that status can shift during the course of a contractor/end-user relationship.
- If a contractor arrangement is deemed to be employed it will be necessary to deduct tax and national insurance.
- Schools may need to review the terms of any consultancy agreements to ensure the tax provisions reflect the new regime.
- Mechanisms need to be put in place to ensure these arrangements are put in place for any new contractual arrangements entered into.