1. Employment Status & VAT Admin Officer Training Day September 2016 IBC Tax Team

2. What is Employment Status? All Employers are required by law to correctly account for income tax and national insurance on payments made to their employees. Before engaging with a worker, we must ensure that their employment status has been determined first. It’s important to know someone’s employment status because it helps determine how they pay tax and National Insurance. An Employed worker is set up in the Payroll System and is subject to tax and NIC deductions at source. A Self Employed worker would typically be paid via an invoice through SAP and can be paid without tax and NIC deductions. However personal services companies need specific treatment from April 2017. If teaching of pupils takes place, in most cases they must be paid through Payroll System unless employed via an agency and payments are made direct to the agency (and the agency deal with the individual’s tax and NIC’s).

3. Personal Service Companies Changes to the tax rules mean that from 6 th April 2017 one person companies, often referred to as PSC’s will be taxed differently. The definition of a PSC is: “A limited company that typically has a sole director the contractor, who owns most or all of the shares” Previously as limited companies we could simply pay on invoice and treat as self employed. From 6 th April 2017 we will NOT be able to do this. All such companies must now be paid through Payroll having tax and both employees and employers national insurance deducted as well as potentially apprenticeship levy. It will be the schools responsibility to ensure that these are identified and paid correctly.

4. Why does employment status need to be considered? If an individual or PSC is paid as self employed in error, the school will be liable to pay HMRC: Income Tax that should have been paid by the Individual National Insurance that should have been paid by the Individual National Insurance that should have been paid by the Employer Interest & Penalties Depending on the circumstances, this can amount to almost as much as the original payment. In many cases, by the time the error has been identified, there will not be the opportunity to recover from the employee.

5. How is employment status determined? There are certain tests that need to be carried out to satisfy ourselves that an Individual can be treated as self employed. Each engagement must be considered individually. HMRC are developing new tests to be applied to PSC’s Being registered with HMRC as self employed does not mean that the service they are providing to a school is self employment. It is possible that a worker may be self employed in respect of some of their work, but employed for the rest. The tests and questions in order to determine the employment status can be found on the intranet: http://documents.hants.gov.uk/finance/TaxManual.pdf In any doubt, please contact the Tax Team.

6. Insurance OCC’s insurance policy covers Council employees, not self employed workers. Any person appointed and who can be genuinely treated as self employed must go through the risk assessment process to determine at what level they must hold their own public liability insurance. Further guidance can be found at http://intranet.hants.gov.uk/corporateprocurement/corporateprocurement- bpguide/corporateprocurement-bpguide-contents/pbr-corporateprocurement- insurance.htm, or by contacting the Insurance Dept. insurance.queries@hants.gov.uk.insurance.queries@hants.gov.uk

7. Petty Cash & Unofficial Funds Under no circumstances should an individual be paid from either petty cash or an unofficial funds account. This includes invoices received from a Personal Service Company and also, invoices from an Individual where Self Employed status has been determined. Petty Cash is still the Council’s expenditure, and so does not avoid the need to account for tax and NI on payments. If an unofficial fund is used to pay an individual, it is possible that they would be seen by HMRC as the employer and penalties can be even higher as they will also include fees for failing to register as an employer. The unofficial fund cannot employ anyone on behalf of, or for the school.

8. Expenses Business expenses incurred by staff such as travel and subsistence, can be reimbursed by the employer by submitting claims in the appropriate method. All claims must be supported by valid receipts and these must be retained for 4 years. Any claim for VAT must be supported with a valid VAT receipt. Receipts must be stored and made available following any audit or HMRC request. Agency staff are never reimbursed their expenses costs direct. Agencies should pay the staff their salary and expenses and this would then be charged to the organisation via an invoice.

9. VAT… Some General Points: Schools are regarded as part of the County Council. Any transactions between OCC maintained schools or between the County Council and OCC maintained schools, are treated as internal transactions and VAT rate Non-Business (Outside the Scope A7/V7) should be used. However, there are some exceptions to this for example, an academy school will count as external organisation. Further examples can be found in the VAT manual section 2.3.5 onwards. Genuine donations and contributions are Non-Business, providing nothing is received in return. Grants from Government are also Non-Business. It is important that if VAT is not charged, the correct rate is still used whether it’s exempt, non-business or standard rated. OCC can only recover the VAT from the last 48 months of activity. If you are provided with a VAT invoice after purchase and payment has been made, please contact the Tax Team via the mailbox, so that an adjustment can be made.

10. Grants If a grant is applied for by the school or Oxfordshire County Council and paid directly into the schools account, it will be covered by our VAT registration and thus any VAT on expenditure relating to this grant will be able to be reclaimed, providing valid VAT invoices/receipts are obtained. It is important to be aware that when something is a genuine grant, the VAT rate is non business (A7 income). However, consideration (payment in money) in return for a supply is potentially standard rated income (A9 income). Where the school is expected to provide goods or services as a condition of the receipt of the grant, care needs to be taken. In any doubt, please contact the Tax Team.

11. VAT Rates Supplies that are within the scope of VAT are subject to standard rate VAT (20%), unless they are covered by: Reduced Rate (5%) E.g. Some utility charges Zero Rate (0%) E.g. books, basic food items, children’s clothing Exemption E.g. Insurance, postage, some land rents Further guidance on VAT rates can be found in the Tax Manual.

12. VAT Outputs and Inputs We have to consider VAT on both income received and purchases made. VAT on income is known as Output VAT VAT on purchases is known as Input VAT VAT Codes:

13. Recovering VAT A valid VAT document must be received before VAT can be recovered and these must be retained for 4 years. If the cost including VAT is £250 or less then you require a less detailed invoice. If the cost including VAT is over £250, a full VAT invoice is required. Details of the requirements of a less detailed and full invoice can be found in the tax manual 2.7.2-3. Note that any receipt containing personal items cannot be used for VAT recovery purposes, therefore ensure that business (cost of items to be reimbursed) and personal items should be on separate receipts.

14. Unofficial Funds If purchases are made through an unofficial fund, the VAT cannot be reclaimed unless this fund is separately registered for VAT. However, an unregistered fund can: Donate the net cost of an item to the school budget, The item is ordered by and invoiced to the school, OCC can then claim the VAT on this item Note that this item then becomes the property of the school as apposed to the unofficial fund. It cannot be donated back to the unofficial fund, nor can they receive beneficial use of it. For example – Donation towards school minibus – The unofficial fund cannot have free or discounted access to it, otherwise the donation becomes standard rated payment for hire of a vehicle. Schools must not procure items for other onsite organisations such as pre-schools and breakfast clubs, who are not part of OCC.

15. Profoma Invoices and ‘This is not a Tax Invoice’ Documents If you receive a Proforma invoice or an invoice that states ‘this is not a tax invoice’, the VAT cannot be recovered, even if the invoice includes all of the necessary details. Proforma invoices are usually provided when payment is required in advance of receiving the goods/services such as Hotel Accommodation. If you receive a proforma invoice, the full invoice cost (gross amount) must be charged to the school budget. Once the goods/services have been received, ensure that the supplier provides a VAT invoice. Once this invoice has been received, forward to the Tax Team where an adjustment can be made to claim the VAT and credit the school budget.

16. Lettings General: General lettings of an open space such as a field, hall or room are Exempt even if you provide tables, chairs or allow the use of a kitchen facility. Sports: Where a space is adapted for physical activity and a physical activity is undertaken in it (for example, football, badminton, dance, yoga etc.), the let of that space is a sporting let and normally standard rated, tax code A9. If they qualify as an eligible body, then we can apply the series of lets rules which may change this to an exempt sports let. There is a set of conditions and all must be met for this exemption to apply.

17. Lettings cont’d ‘General Purpose’ School Hall: A general purpose school hall is typically used for assemblies, school meals etc. and often has floor markings such as those for a badminton court, fixed basketball/netball hoops and perhaps wall bars. HMRC have accepted that a general purpose school hall does not count as a space adapted for sports. As such, this would be a general let and Exempt, tax code A0, unless we provide additional equipment such as badminton nets or the fixed equipment is used, such as basketball hoops or wall bars, then it becomes a standard rated general let. Please refer to the tax manual section 5.7 for in depth guidance on lettings. Other Hiring – Theatre’s: Where a school has an onsite theatre, HMRC have confirmed that ordinarily the let of the facility will be standard rated, tax code A9.

18. Other school transactions and VAT.. Sales to pupils – Sales of some education materials to pupils, can be treated as Non-Business. This is providing that the sale is made at or below cost, is required for educational purposes, is for classroom use and the sale is made by the school directly to the pupil. Musical Instruments – The same should applied to musical instruments sales. However, as well as the charge for an instrument being at or below cost, you can also charge an overhead cost of £5 per instrument. School Trips – Income from pupils for school trips are non business. Providing that, the trip is educational, is not an unofficial fund activity, is charged at or below cost and appropriate documentation is provided. Note, if no charge is made to pupils but a truly voluntary contribution is received, this income will be non-business.

19. Other school transactions and VAT cont’d Commission – Where a school undertakes an activity such as an Art Fair and receives commission, VAT at the standard rate must be accounted for on the income. An exemption to this would be some book fares where commission is obtained. Some companies, in agreement with the schools, hold onto commission received and place a credit on the schools account for the value of the commission and this credit is used on future book purchases. HMRC have agreed that the credits would be deemed faced value vouchers, which could only be used for zero rated purchase and thus not standard rated. Catering – Catering to pupils in school restaurants is non-business, providing it is being supplied at or below cost. Catering to adults and visitors is standard rated. The exceptions to this being cold take away food. Please refer to tax manual section 5.4.2.

20. Other things to consider and be aware of… Loyalty Card Schemes – Personal loyalty cards should not be used on school purchases as this is deemed a taxable benefit by HMRC. Some card providers have business versions of the schemes which are registered in the business name. Internet Purchases – Some companies will allow the OCC VAT registration number to be added to an account. This will allow for full VAT invoices to be provided. Note that the account should be in the business name and the Council’s VAT number should not be added to personal accounts, nor should personal items be bought through OCC business account.

21. Taxable Benefits This is the return the school makes for taxable benefits paid to employees. The returns are made by the schools to the Benefits Team on an annual basis so that this information can be reported on the P11D’s to HMRC. The deadline date for taxable benefit returns for 2015/2016 has now passed and this process has been completed.

22. IBC Tax Team Contact & Info. E-Mail - ibctax@hants.gov.ukibctax@hants.gov.uk Telephone – 01962 847404 VAT Manual & Calculator: http://intranet.hants.gov.uk/tax _________________________________________________________ Please be aware that HMRC should not contact a school direct as the IBC is the first point of contact for them. Therefore, if you receive an email direct asking for details or to advise a refund is able to be reclaimed please always contact the IBC Tax Team in the first instance. For Information - Genuine HMRC correspondence would have a suffix of @hmrc.gsi.gov.uk.