The University recognises that departments may need to engage the services of self-employed individuals as consultants, perhaps to provide highly specialised input into gathering or analysing research data or to act as advisors in dealing with research sponsors.
However, engaging self-employed individual consultants poses certain risks in terms of employment rights and also UK tax law. Our primary risk is incorrectly treating individuals who provide a service as self employed contractors, when in fact they should be treated as employees. This treatment results in a loss of revenue to HM Treasury in the form of Employer's National Insurance, now 13.8% (from April 2011) of all payments, and lower income tax and NI payments by the individual.
The University is bound to apply UK tax law, and failure to do so can damage the University’s reputation, and also result in significant financial penalties (these could amount to more than 100% of any payments made to self employed individuals who should have been treated as employees.
One of the key indicators that we should treat individual consultants as not being self employed is where an individual does a similar job to other [employed] staff members, and/or is paid a fixed hourly or daily rate for services. HMRC periodically request details of payments made to individuals, and may also review such payments as part of a wider PAYE review. In light of this, the university operates strict procedures for new suppliers who are self-employed individuals.
Prior to setting up a new “self-employed individual supplier”, the department must complete an Employment Status Questionnaire and send it to the Payments Section of the Finance Office.
This questionnaire will enable the University to determine whether the individual is genuinely self-employed. Where the supplier is approved, this approval will last until the end of the contract, for up-to a maximum period of 18 months. After this approval expires, the department must complete a further questionnaire. Failure to follow this procedure will result in payment to the supplier being delayed.
In some cases we will be unable to engage with the individual on a self-employment basis, and the department will have the choice of engaging the individual as an [temporary] employee (subject to the necessary Operational Committee approval) or on a zero hours contract; alternatively the individual could set up their own personal Limited company, through which they will provide services.
In some cases, changing the current arrangements will result in additional cost for the University i.e. employer’s NI (currently at 12.8%) on all pay-rolled payments, or increased VAT. Equally the supplier may incur additional admin costs if they set up a Limited company. Whilst this is regrettable, it is unavoidable.
Departments should always have a written contract with a self-employed consultant rather than relying on a verbal agreement. Contractors will be bound by the University’s standard terms and conditions. A template Self-employed Contract sets out the deliverables that are available, and the University’s Payments and Purchasing Manager, will be happy to provide any additional advice on contractual issues.
Date: September 2004 (Updated June 2006, May 2010, April 2011)