What is IR35 – Off payroll working?
The off payroll working (IR35) rules make sure that a worker (sometimes known as a contractor) pays broadly the same Tax and National Insurance as an employee would.
It was introduced in 2000, reformed in April 2017 and 2021.
When the rules apply?
The school will be responsible for determining whether the off payroll working rules should apply if the worker:
- provide services to you through their own intermediary - most commonly a limited company, which they are the sole director (personal service company, PSC) or a partnership or a managed service company or an individual
- would have been an employee if they were providing their services directly to you.
The rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off payroll working rules and some do not.
N.B. A contract can be written, verbal or implied agreement between parties. It is advised that a written contract is supplied.
What you need to do
1. Identify any individuals who are affected, e.g. interim teachers (including headteachers, music teachers), sports coaches, language tutors, consultants, facilities and ground maintenance
- an individual who registered as self-employed, e.g. a self-employed Music Teacher is engaged to run sessions on a weekly/monthly basis
- an individual engaged through their own limited company (PSC), e.g. an individual operating through their own consultancy is engaged to run teacher training
- an individual engaged through an agency or other third party, e.g. supply teacher is supplied by an agency who is not operating PAYE for that individual
* There are specific employment status rules for the entertainment industry, please see below further information.
2. Determine the employment status - this should be carried out before the individual is engaged or carries out any work - carry out the Check Employment Status for Tax (CEST) tool* for each individual affected
*Please ensure the correct option is selected:
-
If the worker has their own personal service company (limited company), you should select "If the off-payroll working rules (IR35) apply to a contract"
-
If the worker claims they are self-employed, please select "If some work is classed as employed or self-employed for tax purposes".
When carrying out the CEST check additional guidance can be found in each section of the checker, examples are provided to assist with the completion of the form.
Check if the agency or third party operates PAYE (deducts the correct Tax and National Insurance via their payroll).
N.B. Do not make payment until the CEST has been carried out and agreed by payroll
3. Complete the questionnaire to support CEST
4. Ensure all documents are sent to Payroll team employeebenefits@coventry.gov.uk, they should also be kept by the school and made available in case you are required to produce them for a compliance audit.
5. Inform the worker of the outcome and arrange payment as advised by the Payroll team - if the result is either off-payroll working rules apply or off-payroll working rules do not apply, there will be a requirement to issue the worker with a Status Determination Statement (SDS). This is a written of the decision that MUST be supplied to the worker, templates are available at IR35 off payroll documents
- Employed for tax purposes – Tax/NI will need to be deducted before the invoice can be paid.
- Self-employed for tax purposes – no deductions are required.
- Off-payroll working (IR35) rules apply – Tax/NI will need to be deducted before the invoice can be paid and SDS will need to be issued.
- Off-payroll working (IR35) rules do not apply – no deductions are required and SDS will need to be issued
N.B. An SDS is not required for Employed for Tax Purposes or Self Employed for tax purposes.
A worker may be registered as self-employed, but they are hired to carry out duties that would normally be carried out by a role within the school, such as Teaching, in these circumstances it would point to the worker being employed for tax purposes.
Employed for tax purposes is not the same as having employment rights, it means the organisation have a responsibility to process the payment through PAYE and apply statutory deductions.
Please be aware that non-compliance could result in financial penalties being imposed by the HMRC and the school would be liable for those penalties.
If the working practices of the engagement change or you negotiate a new contract with the worker, you must make sure that you re-check the rules to see if they still apply. It is also advised that a new CEST should be completed for any payment due after 06 April each year, and reviewed every 6 months to ensure the working practices have not changed.
What to do if the worker disagrees with the determination
Please follow the disagreement process.
Get more advice
You can visit GOV.UK's IR35 advice or contact the Payroll team at employeebenefits@coventry.gov.uk