Employed or self-employed?
Whenever you engage the services of an individual, a decision needs to be made regarding their employment status. Should the person be treated as:
- an employee and be paid via the payroll system (with income tax and national insurance deducted)?
- an intermediary worker?
Why is it important?
Determining employment status is the responsibility of the engager. This means that it is your responsibility to ensure that appropriate tax and National Insurance deductions are made.
If, as part of an audit, HM Revenue and Customs (HMRC) discover that an individual has been incorrectly treated as self-employed, then your school would be liable for the tax and National Insurance that should have been deducted. In addition, fines and interest could be imposed, all of which would be charged against your budget.
How can I tell if the individual is employed, self-employed or an intermediary worker?
To determine this, you must use HMRC’s Employment Status Service Assessment (ESS) tool. This is an online facility designed to establish the employment status of an individual or group of workers.
The assessment will ask questions about the work to be undertaken, responsibility and use of equipment to determine if the individual should be paid on invoice or through the payroll system with NI and tax deductions.
When you’ve answered all the questions, the ESS tool will provide an indication of the worker’s employment status.
You can rely on the ESS outcome as evidence of a worker’s status for tax/NICs/VAT purposes if both of the following apply:
- Your answers to the ESS questions accurately reflect the terms and conditions under which the worker provides their services.
- The ESS has been completed by the engager or their authorised representative (if a worker completes the ESS tool the result is only indicative and cannot be used for HMRC audit purposes).
When do I have to complete an ESS?
From 6 April 2017, the old style HMRC Employment Status Indicator (ESI) checks will no longer be valid and the Payroll Compliance Team must be provided with a copy of the Employment Status Service (ESS) result before payment can be made.
- Where a contract has been entered into on or after 6th April 2017, you must complete an Employment Status Service (ESS) check on or before the contract is entered into.
- Where a contract is entered into before 6 April 2017, you must complete an Employment Status Service (ESS) check on or before the date the first payment is made under the contract on or after 6 April 2017.
HMRC are very clear that no assumptions can be made regarding employment status.
An individual, who is self-employed for one role, may not necessarily be so for another type of job.
Therefore it is important that an ESS check is carried out:
- Every time you engage someone for the first time.
This is regardless of whether another school/ area of DCC already use them in the same role. It cannot be assumed that you are engaging them under the same circumstances (and therefore the ESS result may differ).
- Each time you engage someone you have paid previously if they are undertaking a different type of work/ circumstances are different.The same considerations need to be taken into account regardless of whether the individual works part time or on a casual basis.
What do I need to know before I complete the HMRC ESS tool?
The ESS tool will ask you a series of questions regarding the work to be undertaken, the worker, and you as the ‘engager’.
- Once you have completed all the questions, the ESS Tool will generate an outcome along with a summary of the answers you provided to the questions asked.
- On the same page, it will give you the opportunity to enter information for reference. This section must be completed (please note that only the first 15 characters are visible once the page is printed).
- The name of the individual/business you have completed the ESS Tool for must be provided in the first box.
- The name of the school must be provided in the second box.
You must save a copy of this report.
A copy must be sent to the Payroll Compliance Team – if Payroll Compliance do not have a record of the relevant ESS Result, payment to the individual/ company will not be made.
Copies will also be required as audit evidence and HMRC will require sight of these copies on request.
How do I access the HMRC ESS tool?
You can access the questionnaire on the HMRC website at www.gov.uk/employment-status-indicator.
I’ve completed the HMRC ESS Tool. What do I do now?
In all cases, the Payroll Compliance team must be notified whenever an ESS has been undertaken regardless of the result.
This can be done by copying and pasting the template below and emailing it to firstname.lastname@example.org.
I confirm that I have completed an HMRC Employment Status Service check on the following individual/ business and I have attached a copy of the result.
|Name of the individual/business you have completed the ESS for|
|Name of the school who is engaging the individual|
|Job role they have been engaged to undertake|
|Is the contract for the provision of services with a Ltd/Umbrella company or directly with an individual?|
I have sent an email to Payroll Compliance Team. What else do I need to do?
Please refer to this flowchart.
What happens if the result is ‘self-employed’ and we wish to engage the person more than once to carry out the same role?
If applicable, future payments to the individual for exactly the same type of work may be paid without deductions.
Responsibility for determining this remains with the engager.
You must complete a new ESS if the terms of engagement change.
In addition, if the engagement becomes an ongoing arrangement, it is likely that the outcome may change to that of employee.
What happens if the result is ‘the intermediaries legislation applies’ and we wish to engage them more than once to carry out the same role?
Future payments to the individual or business for exactly the same type of work can be made by completing an Intermediary Worker Engagement form (Prism 7IW).
Once completed, this should be sent along with the accompanying invoice, to the Payroll Compliance Team who will ensure that the correct deductions (for tax, NI etc) are made before payment.
There is no need to complete a new ESS tool if the terms of engagement remain the same. Responsibility for determining this remains with the engager and a new ESS must be completed if any aspect of the arrangement changes.
What should I do if the individual disagrees with the outcome?
This process is in place in all schools and local authorities, follows HMRC’s guidelines and can be relied upon if the correct information has been used.
It is the engager, not the individual, who must decide the employment status and you will be liable for any payments and fines should this be wrong.
Who should I contact if I’m not sure of the process to follow or the outcome is unclear?
- The Payroll Compliance team can help to guide you through the process in general and provide guidance on DCC’s requirements. Please email email@example.com.
- For any specific questions or advice regarding the outcome, you may also contact the HMRC Status Customer Service Team on 0300 1232326.
- Further information regarding employment status may be found here.
- For queries relating to the payment of invoices (for an ESS result of ‘self-employed’) please email firstname.lastname@example.org.
- For queries on VAT please email email@example.com.