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Self-employment criteria and off-payroll working for charities

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From April 2021 the rules for engaging individuals through personal service companies are changing. The responsibility for determining whether the off-payroll working rules (sometimes known as IR35) apply will move to the organisation receiving an individual’s services.

Your charity must satisfy itself that anyone who provides personal services off payroll meets the criteria for self-employment.  If you fail to do this your charity will be liable for income tax and NICs. There are also some special rules for educational charities and for arts and culture charities, as well as some rules that apply to Public Sector Bodies and Intermediaries that may apply to certain charities.

To determine whether someone meets the criteria for self-employed status you must build a picture using the various indicators below. It is an art rather than a science as the circumstances will determine which factors have more or less weight in each case. Bear in mind the obvious one: do they look like they are in business on their own account?

It is very important to note that HMRC expects the engager to reach this decision. The liability is with the charity if you get this wrong.

From April 2021 the rules for engaging individuals through personal service companies are changing. The responsibility for determining whether the off-payroll working rules (sometimes known as IR35) apply will move to the organisation receiving an individual’s services.

CTG’s focus is now on ensuring that affected charities are prepared. What steps are you taking? Talk to payroll and accounts colleagues and contractors. Read updated HMRC guidance and CTG commentaries and this advice on planning ahead!

HMRC has published a factsheet for contractors regarding the changes to off-payroll working from April 2021. HM Treasury has published guidance on how to increase compliance with these rules.

Determining self-employment status

Issues not relevant to a status decision

  • “They said they were self-employed” or “They asked to be self-employed” – It is up to the engager to determine whether the indicators of self-employment are met not the self-employed person.
  • “They have a UTR (unique taxpayer reference)“– All taxpayers have a UTR. This is not an indicator of status.
  • “They have a certificate of Self-employment” or “… a letter from their accountant saying that they are self-employed.” – There is no such thing as a certificate of self-employment and their accountant is not in a position to determine whether the work they will do for you meets the criteria for self-employment.

Factors determining employment status

In deciding whether a person is in business on his or her own account, a range of factors must be taken into consideration. The table below lists the main ones. None of these factors are conclusive in their own right and whether or not someone is an employee cannot be determined by running down a check-list or adding up the number of factors pointing toward employment and comparing that result with the number pointing toward self-employment.

It is a matter of evaluating the overall picture that emerges from a detailed review of all the facts of the particular case. The HMRC website includes an Employment Status Indicator into which a charity can input the relevant data to see whether or not a particular individual is likely to be regarded as an employee. However, it should be noted this merely gives HMRC’s opinion, which is not necessarily the correct legal position, nor is it necessarily the same as the employment law position.

Factor Comment
Control The higher the degree of control that the charity exercises over the individuals – what they do, where they do it, when they do it and how they do it – the more likely they will be employees.
Personal service or send someone else to perform the services If the individual can substitute another person to carry out his or her work that is strong evidence of self-employment where the individual is responsible for paying the other person.
Equipment An employee would not generally have to provide his or her own equipment. However, minor items such as laptops and calculators are not usually helpful.
Financial risk Could the individual lose money from the arrangements? If so, this is an indication of self-employment. Having to correct deficient work on their own time, having a fee for a project rather than an hourly or daily rate and holding public liability insurance are helpful indicators of self-employment.
Basis of payment Employees are often paid a fixed wage or salary weekly or monthly. Independent contractors are often paid a fixed sum for a particular job.
Mutuality of obligation If the engager is obliged to offer work and pay remuneration and the worker is obliged to provide services, that is an indication of employment.
Holiday pay, sick pay and pension rights or any other staff benefits Unlikely to be paid to a self-employed contractor.
Part and parcel of the organisation Is the individual treated on a day-to-day basis the same as the charity’s employees? If so, he or she is more likely to be an employee, e.g. on staff list, given an email address at your charity or a telephone extension, or invited to the staff Christmas party.
Right to terminate a contract A power to terminate an engagement for a reason other than a serious breach of contract by giving notice of a specified length may be indicative of a contract of employment.
Opportunity to profit from sound management If speed and efficiency and the reduction of overheads can benefit the worker, this may be an indication of self-employment.
Personal factors If the worker provides services to lots of other charities or businesses this would be an indication of self-employment.  However, be cautious of this indicator as it is possible to be employed in one role and self-employed in another.
Length of engagement The shorter the engagement the less likely the worker will be an employee.  However, it is also possible to be employed for a day.
Intention of the parties Do the parties intend the worker to be an employee?  If this is evidenced with a contract for services this is helpful.

 

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