Payments to Self Employed Persons

Guidance Notes

1. Executive Summary

The procedures regarding self employment are complex due to legislation and case law.

Departmental staff should not agree to any self employment arrangements without first taking advice from Finance and Business Affairs.

In particular, it is not acceptable for invoices from individuals, together with a covering letter explaining why self employment is deemed to be appropriate, to be included in payment batches.

Self employment for persons carrying out regular teaching duties is most unlikely to be accepted by UCL. Special conditions apply in the case of payments to Visiting Lecturers/Occasional Lecturers and Examiners.

2. Other payments

Payments to Self Employed Persons other than Visiting Lecturers, Occasional Lecturers, Overseas Lecturers and Examiners

2.1. The procedures for Visiting Lecturers et al are covered in section 3.

2.2. For all other staff, appointments to UCL are normally made through the Human Resources Division and most staff are treated as employees and paid through the payroll with appropriate deductions for tax and National Insurance contributions.

The cost to UCL also includes employers National Insurance and, when relevant, employers superannuation contributions.

2.3. The following procedures only apply in those cases where the UCL department concerned considers that there is a case for self-employment arrangements to apply.

2.4. The distinction between self-employment and being employed is sometimes very fine, and ultimate judgement may often rest with the Courts over an individual's status. However, for practical purposes UCL must follow HMRC guidelines.

2.5. The HMRC expects UCL to operate the PAYE regulations effectively and to monitor all payments made to self-employed persons. UCL is required to operate PAYE, unless evidence is provided of self employment and the individual can be paid gross.

UCL have clearance from HMRC that in certain circumstances payments can be paid gross without HMRC approval. In cases of doubt UCL may refer the matter to HMRC, providing full details of the work carried out and the individual who carried it out, together with full background details. It will then be for the UCL Tax Inspector to decide whether or not self-employment is appropriate. It should be noted that UCL will abide by whatever decision is reached by HMRC in such cases.

It is important that only those individuals who have been approved for self-employment are paid gross against invoice. All other individuals who receive payment for work carried out on behalf of UCL must be paid on PAYE terms with the appropriate deductions taken at source. If UCL fails to operate PAYE and HMRC decide that the person was 'employed' then UCL may become liable for the tax & NI it should have deducted together with penalties.

Approval for self-employment should always be obtained before the work takes place and before any agreements are made or promises are given to individuals that payment will be made on a gross basis and before invoices are submitted in batches for payment.

2.6. The procedure to obtain approval involves the completion of a self-employment questionnaire by departmental staff. Finance and Business Affairs staff will inform the department after assessing the questionnaire whether gross payment is appropriate. If the matter needs to be referred to HMRC for a ruling the department will be advised. Please be aware that it can take some time for HMRC to respond, depending largely on the complexity of the case.

There are certain key indicators of self-employment that HMRC will normally look at. Self-employment is indicated where:

  • The individual is able to control not only what work must be done, but also how, where and when.
  • The individual provides the major items of equipment.
  • The individual has to correct unsatisfactory work in his/her own time and at his/her own expense.
  • The individual is free to hire helpers.
  • The individual is contractually obliged to or has the right to provide and pay a substitute.

It should be noted that although many factors are taken into account when looking at whether or not an individual can be classed as self employed, it is not sufficient to simply satisfy the factors listed above.
The individual has to establish to HMRC that they are in business on their own account. Unless there is evidence of financial risk the individual is unlikely to be treated as self employed.

2.7. This system of approval is necessary because the UCL Tax office insists that it is the nature of the work carried out by the individual and not the status which they have, or claim to have, which dictates whether or not they can be treated as self employed. If the tax office rule that the payment is taxable then UCL has no choice but to arrange payment through the payroll and incur additional costs of employers National Insurance. This applies irrespective of any letters produced by individuals claiming that they are registered as self-employed whether from other tax offices, firms of accountants or other professional advisers. UCL will not accept any letters from individuals as proof of self employment.

2.8. The following guidelines are based on previous tax office rulings:

  • any person providing services for mainstream activities such as teaching or lecturing is deemed to be an employee and payments must be routed through the payroll and the appropriate deductions (tax and national insurance) will be taken at source.
  • any person providing temporary or casual technical, secretarial or clerical assistance is deemed to be an employee and payments must be routed through the payroll and the appropriate deductions (tax and national insurance) will be taken at source.

Any exceptions to the above must be approved by the UCL tax office before any invoices are passed for payment.

Requests from all persons who wish to be treated as self-employed will be considered when a fully completed questionnaire is submitted. It will still be necessary in some cases to inform the UCL tax office of decisions made within Finance and Business Affairs in order to obtain confirmation that they agree with UCL's interpretation of the case. It is at the discretion of the Director of Financial Accounting, Finance and Business Affairs, whether or not a payment can be processed while the necessary information to approve self-employment is obtained. This will be viewed on a case by case basis and will largely depend on the nature of the work carried out and the amount to be paid to the individual.

2.9. Where a person is accepted by UCL as being self-employed, the following procedures will apply in order to make payment:

  • Issue official UCL Purchase Order to confirm the service required. UCL standard conditions will apply. In particular Departments must not agree to any other non standard payment conditions or penalty clauses.
  • After service has been provided arrange for the individual to submit a formal business invoice, i.e. pre-numbered, preferably pre-printed, containing full business address, brief details of service provided, cross reference to UCL purchase order and amount due.
  • It is normal practice that the invoice will show the payment due for the work done.
  • The invoice should be processed using the PINV procedure, in the same way as any other supplier invoice. No Human Resources or Payroll forms should be completed in respect of those approved for self-employment.

2.10. Self-employed persons are responsible for their own public liability and indemnity insurance and are not covered by UCL's policies.

2.11. There may be cases where a person has to be treated as an employee for tax purposes but does not otherwise fall into any of the standard UCL employment categories.

In such cases the procedure to be followed is:

  • Complete SiP Form 4/5
  • Complete SiP Form 6 as and when payments need to be made.

Note, however, that for the first payment HR Division request that both forms are submitted together.

3. Payments to Visiting Lecturers and Examiners

3.1 Background

The general tax and National Insurance (NI) position can be different when dealing with payments to lecturers.

UCL are under general instruction from the tax office that any person employed to teach on a mainstream course (i.e. where the detailed syllabus is laid down by UCL or one of its constituent bodies) must be treated as an employee. As such, UCL is obliged to make deductions for tax and NI.

If, however, an individual carries out teaching duties that do not form part of the core curriculum they may be employed on different terms and conditions and it may be possible to make gross payment against invoice.

Full time Lecturers are, almost invariably, treated as employees and are paid through the payroll.

Such employees do not receive specific reimbursement of home to work travel expenses, nor do they have telephone costs reimbursed. Both of these items would be taxable if they were paid.

All such appointments are made through the Human Resources Division.

A part-time Lecturer whose engagement covers a complete academic term or longer and who has similar terms and conditions to a full-time Lecturer is likely to be an employee. Someone who is taken on for less than a term and for say two or three hours per week may fall into the Visiting Lecturer or Occasional Lecturer category, provided that their terms and conditions are not similar to those for full-time Lecturers.

3.2 Occasional Lecturers

Sometimes Lecturers are engaged to give a series of lectures on a particular topic. They may be employed or self employed depending on the particular circumstances.

They are likely to be categorised as employees if:

  • There is extensive control by UCL staff over conduct and discipline, hours of attendance, where and when lectures are given, course content etc; for example, a Lecturer required to teach in accordance with a set syllabus.
  • The lecture has to be undertaken personally and a substitute is not acceptable to UCL.
  • All equipment is provided by UCL, e.g. overhead projector, handouts etc.

In such circumstances the normal procedure would be to appoint someone under the College Teachers Scheme using SiP Form 3.

If however Human Resources Division agree that the College Teachers Scheme is not appropriate then the SiP Form 4/5 and 6 procedure as set out below can be used to arrange payment.

  • Complete a SiP Form 4/5, appointment of occasional staff, and send to the Personnel Administration Office, Human Resources Division.
  • Complete a SiP Form 6, payment/additional payment to an existing member of staff, to action payments as they become due. These forms should also be sent to the Personnel Administration Office, Human Resources Division.

Note that Human Resources request that both forms be submitted together for the first payment.

3.3 Visiting Lecturers and Occasional Lecturers treated as Self Employed

(i) Definitions and relevant factors
A Visiting Lecturer who gives a one-off talk or in certain circumstances a short series of talks on a subject about which he or she has specialist knowledge and which is not part of the core curriculum will normally be engaged on rather different terms and conditions. Self employment is likely to be accepted by UCL in such circumstances.

Occasional Lecturers who give a series of lectures on a particular topic may be employed or self employed depending on the particular circumstances.

Self employment is likely to be accepted if:

  • There is little control by UCL staff, for example, when a Lecturer is engaged to talk about a specific subject but is left to determine the content of the lecture.
  • The Lecturer is allowed by UCL to send along a suitably qualified substitute.
  • All equipment is provided by the Lecturer.
  • The Lecturer has a number of short term lecturing engagements with different Institutions.
  • The Lecturer has a business approach to obtaining and organising his/her engagements and expenditure in this area of a type not normally associated with employment (e.g. provision of office accommodation, office equipment etc).

A business approach would involve the submission of formal business invoice, i.e. pre-printed, pre-numbered (in a logical sequence) containing full business address plus the usual details of service provided and amount due.

  • The person is already self-employed in a related full-time (or substantial) profession or business where occasional lectures are regarded as part of the individual's profession or business.

(ii) Approval Process

The procedure to obtain approval involves the completion of a self-employment questionnaire (copy attached) by departmental staff. A decision on whether self-employment is appropriate will be notified to the department after an assessment by Finance and Business Affairs staff has been made. If the matter needs to be referred to the UCL Tax Inspector for a ruling the department will be advised.

Approval for self-employment must always be obtained in advance. It is not acceptable for invoices to be included in payment batches if prior approval has not been given.

Any requests for self employment which involve repeated lectures or teaching sessions by a single individual will be referred to the Human Resources Division for a decision as to whether self employment is appropriate within the context of UCL's College Teachers Scheme. This may increase the time taken before a decision is available.

(iii) Payment of Expenses only

In order to decide whether gross payment of expenses can be made it is necessary for the approval process described above to be carried out. If self-employment is accepted, expense claim forms may be used for the payment of expenses only, provided the claims are backed up by original receipts/vouchers. The Visiting Lecturer need not sign the form if this will cause practical difficulties for the department. It must however state 'Visiting lecturer - expenses only payment'. It is not acceptable to submit expense forms for fee payments to such visitors nor for fees to be described as expenses and processed as such.

(iv) Payment of Fees and Expenses

If an individual is accepted as being self employed they must submit a formal business invoice including details of both fees and expenses. The invoice should be processed in the same way as any normal supplier invoice, using the PINV procedure. The invoice should be pre-printed, pre-numbered, contain the full business address of the lecturer and give details of the service provided and the amount due. The UCL department should already have issued an official UCL purchase order in advance of the invoice being submitted for payment, again in the same way as with a normal supplier.

3.4 Payments to Overseas Lecturers

HMRC rules covering payments to overseas lecturers are the same as those for home lecturers. It is where the lecture is carried out which determines the liability of tax and NI contributions, not the individual's country of residence. Therefore, if an individual is engaged to lecture on a mainstream course, they must be paid via payroll where deductions will be made at source.

3.5 Payments to Examiners

The current HMRC guidance regarding Examiners is that Examiners up to and including first degree level should be treated as employed for tax and self employed for NI contributions; fees should be paid through the payroll. In most cases, SiP Form 7 can be used for this purpose. Reimbursed expenses, including payments for travel from home, may be paid gross using the normal expense claim forms.

The most recent advice also states that examining on Masters Degree Courses is normally treated as self employment. Departments should nevertheless follow the procedure in 2.6 above in order to obtain approval from UCL.