Guidance for KCC Schools IR35 Guidance for KCC Schools

What is IR35? IR35 is tax legislation that is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used ‘Disguised employment’ can save the engaging organisation a significant amount of money as they do not have to pay employers’ NICs, and it also means they do not offer any employment rights or benefits It has been in place officially since 1999, however has been heavily criticised and therefore has been reviewed by HMRC and changes have been made impacting the public sector

Summary of Changes New HMRC legislation comes into effect on 6 April 2017 The responsibility for determining employment status moves from the worker to the client, i.e. KCC This effects all payments made on or after 6 April 2017, even if the work has already been completed All assignments need to have their employment status checked using a new tool from HMRC This includes workers who are engaged via an agency The tool is called the Employment Status Service (ESS) and can be accessed on their website (here)

Employment Status Service (ESS) The ESS tool asks a series of questions around the assignment before providing an outcome The outcomes are either In scope of IR35 (i.e. employed) Out of scope of IR35 (i.e. self-employed) Undecided If the outcome is in scope of IR35, the payment should be deemed as employment. Income Tax (PAYE) and National Insurance (NICs) must be deducted If the outcome is outside scope of IR35, there is no change and invoices can be paid as normal If the outcome is indecisive, the assignment requires further investigation. KELSI contains guidance relating to other tests. The Technical & Companies Team in Finance at KCC can provide advice

Key Questions “Is the worker or their business an office holder for the end client?” An office holder is a statutory appointment, such as a company director, company secretary, board member, trustee An office holder is not someone covering a permanent role in your organisation

Key Questions “Would the end client accept the worker's business sending someone else to do this work instead?” This is a key question and should be answered accurately Consider whether you would be happy if someone else completed the work who was not who you originally engaged

Key Questions “What’s the main way the worker is paid for this engagement?” An hourly, daily or weekly rate is likely to sway the result towards employment A fixed price for a specific piece of work is likely to be sway the result towards self-employment It is important to consider how you arrange and agree contracts

Materials, Equipment, Vehicle, Other Expenses Key Questions “What does the worker have to provide for this engagement that they can't claim as an expense from the end client or an agency?” Materials, Equipment, Vehicle, Other Expenses The materials, equipment, vehicle and other expenses must be significant expenditure which cannot be reclaimed. The use of a vehicle and other travel related expenditure must relate to work tasks, not commuting.

What to do with the result If you use an agency, both the agency and the worker must be informed of the employment status. This is for the worker’s records and so the agency can make the appropriate tax adjustments if necessary If you engage directly with the worker, the worker must be informed of their employment status. You will have to make the appropriate tax adjustments if necessary. It may be preferable to ask the worker to join an agency. It is important that you keep records of all employment status tests carried out in case of a query or HMRC visit Template correspondence will be available on KELSI to help you. You should offer an opportunity to challenge the result as there may be unique circumstances affecting the result

Assignments where status can be assumed inside / outside scope The Technical & Companies Team have evaluated the assignments below and you can use the recommended outcomes below if you wish. You should still offer the opportunity to challenge IN SCOPE Supply teachers Head teachers Administration staff Finance staff OUT OF SCOPE Handymen, electricians, plumbers etc. School Improvement Advisors Headteacher Recruitment consultants

Key Contacts HMRC Employment Status Service https://www.tax.service.gov.uk/check-employment-status-for-tax/setup ir35@hmrc.gov.uk 0300 123 2326 Chief Accountant Team at KCC Bev Gibbs 03000 416 143 Joe McKay 03000 419 601 CATEnquiriesKCC@kent.gov.uk