Off Payroll Working (IR35)

 Arts Tower

It is important that staff members, who engage individuals to undertake any type of work for the University, understand their responsibilities and the steps they need to take to comply with relevant legislation, as well as recognising the consequences of poor engagement practices. 

The purpose of the University’s Off Payroll Working (IR35) policy and procedure, which form part of the University’s Financial Regulations (SIA 26), is to provide a clear process for those staff who engage workers on behalf of the University, to ensure that these engagements follow good practice and are fully compliant with the HMRC’s IR35 regulations and other relevant employment legislation.

The Off Payroll Working (IR35) Team are providing a weekly drop-in session (booking is required), to help support engaging managers with the new procedures, due to be effective from 1 April 2021.  Click here to find out the available sessions.

Need advice? Contact the Off Payroll Working (IR35) Team    

Off payroll working

Understanding off payroll working (IR35) 

What are the "Off Payroll Working (IR35) Regulations"?

The Off Payroll Working Regulations, often referred to as “IR35”, is tax legislation. The regulations aim to ensure that individuals undertaking the same roles in an organisation pay the same amount in taxes, irrespective of how they are engaged. This will apply to workers (typically contractors or freelancers) who supply their services via an intermediary (a link between the University and the individual providing the services in practice), the most common examples being a personal services company (PSC) or an agency.

The regulations require the University to determine the appropriate employment status/contractual relationship between the individual and the University. Where an individual is engaged through an intermediary, the University is required to provide an employment status determination to the worker and the intermediary to confirm its relationship with the individual providing the services and whether the regulations apply.

What are “off payroll workers”?

An off payroll worker could be either:

  • a self-employed worker engaged directly by the University;
  • a worker provided by an agency (agency worker), or;
  • a worker engaged through an intermediary, which in this context is typically someone working as a subcontractor, a sole trader/partnership who provides their services to the University through their own limited company, often known as a personal service company (“PSC”).

When should the Off Payroll Working (IR35) procedures be followed?

Any engagement of an individual providing their services to the University, who has not been engaged as an employee or casual worker (paid on main or casual payroll), will need to follow the Off Payroll Working (IR35) procedures. This will ensure that the Off Payroll Working (IR35) team can undertake the required employment status determination before work commences.

What is an “employment status determination” or “CEST”?

An employment status determination broadly refers to an assessment to establish how an individual should be engaged to work for University i.e. as an employee or casual worker or as a self-employed vendor etc.

For the purposes of the Off Payroll Working (IR35) Regulations, the employment status determination would firstly assess whether the IR35 (intermediary) rules apply to the engagement of a worker. Once this was established, the assessment would determine how the worker should be engaged for tax purposes i.e. on payroll (University responsible for tax and NIC deductions) or off payroll (University not responsible for tax and NIC deductions).

A “CEST” refers to HMRC’s Check Employment Status for Tax tool. This tool will be used by the University to determine a worker’s employment status and whether an intermediary arrangement is within IR35 rules.

Roles and responsibilities

Roles and responsibilities

The role of the Engaging Manager

  • To ensure that no work commences before the employment status determination has been completed.
  • To complete the appropriate Off Payroll Working (IR35) Questionnaire (ESQ1 or ESQ2) and submit this to the Off Payroll Working (IR35) Team in advance of the engagement commencing, at least 10 working days before the proposed contract start date.
  • To ensure the questionnaire is completed accurately to support the correct outcome for the employment status determination.
  • To seek advice from the Off Payroll Working (IR35) team for support to help them respond accurately to the questions, if required.
  • To liaise with the Off Payroll Working (IR35) team to determine how engagements should proceed, based on the outcome of the employment status determination.
  • Once work has commenced, if there are any changes to a worker’s terms and conditions or working practices, the engaging manager should inform the Off Payroll Working (IR35) Team as soon as possible.
  • To ensure that engagements follow good practice and are fully compliant with the Off Payroll Working (IR35) regulations and other relevant employment legislation.

The role of the Off Payroll Working (IR35) Team

  • To support engaging managers to complete the appropriate Off Payroll Working (IR35) Questionnaire (ESQ1 or ESQ2) accurately.
  • To undertake an employment status determination, via the HMRC’s CEST tool, for all off payroll engagements.
  • To liaise with engaging managers to ensure the appropriate engagement route is used.
  • To provide written confirmation, where applicable, to the worker and associated parties of the University’s employment status determination.
  • To provide and manage a disagreement process, where applicable, for a worker to disagree with the University’s employment status determination.
  • To ensure that all information collated to inform the status determination for the worker, irrespective of the outcome, is referenced, recorded and stored appropriately.
  • To review off payroll engagements, as appropriate, to ensure employment status determinations are still valid.

Process flowchart

Off payroll working (IR35) process flowchart

The flowchart below shows the Off Payroll Working (IR35) process, detailing the steps undertaken by the engaging manager and the central Off Payroll Working (IR35) team.

Click here to view guidance on the common roles process.

A PDF version of the flowchart is available here.

Off Payroll Working (IR35) Process Flowchart

 Questionnaires 

Completing the off payroll working (IR35) questionnaire 

If your department has an off payroll engagement due to commence on or after 1 April 2021, the appropriate questionnaire (ESQ1 or ESQ2) will need to be completed before a contract is issued and work can begin. The accuracy of the information provided via the questionnaire is essential to the precision of the employment status determination outcome. 

Before completing the questionnaire, it is recommended that the engaging manager reads the guidance below and, if necessary, seeks advice from the Off Payroll Working (IR35) team for support to respond accurately to any of the questions. 

Download ESQ1: For services NOT provided through an intermediary (PSC or Agency)

Download ESQ2: For services provided through an intermediary (PSC or Agency)

Click here to view guidance on creating common roles

For further guidance on completing the Employment Status Questionnaire click here.

When to complete the Off Payroll Working (IR35) Questionnaire

The appropriate questionnaire should be completed each time you intend to make an off payroll engagement, i.e. an engagement which is not an employee or casual worker.

This also applies to a new assignment for an existing vendor. The working arrangements may change each time the worker is engaged, therefore, a new employment status determination will be required to ensure compliance.

The Procurement and Payments teams will be unable to create a new vendor or new purchase order (for an existing vendor) without evidence of the employment status determination completed by the Off Payroll Working (IR35) team. Therefore, please ensure that questionnaires are submitted to the team in advance of the engagement commencing, at least 10 working days before the proposed contract start date.

Departments must ensure that no worker is permitted to commence work prior to the completion of this determination.

Which questionnaire should I complete?

To determine which questionnaire to use, you will need to confirm whether the individual you would like to engage will be providing their services through an intermediary.

An intermediary means an agency or limited company arrangement through which a worker is seeking engagement with the University. The most common limited company is a personal service company (PSC). A PSC is usually, although not always, owned and run by one individual. A PSC would be a company in which the worker receives/is entitled to receive ‘chain payments’ from the company for the work undertaken.

No intermediary (ESQ1) - Not within IR35 rules

If the individual you would like to engage to undertake the work is NOT providing their services through an intermediary, then the IR35 rules will not apply and the engagement will be directly with the individual once their status is determined.

The University is required to undertake an employment status determination to assess if the individual is:

  • Employed for tax purposes for this work
  • Self-employed for tax purposes for this work (individual)
  • Corporate supplier of services

To determine this, engaging managers are required to complete the ESQ1 questionnaire.

Through intermediary (ESQ2) - IR35 rules should be considered

If the individual you would like to engage to undertake the work is providing their services through an intermediary, then the IR35 rules should be considered.

The University is required to undertake an employment status determination to assess if the:

  • Off-payroll working rules (IR35) apply; OR
  • Off-payroll working rules (IR35) do not apply.

To determine this, and then how they should be engaged, engaging managers are required to complete the ESQ2 questionnaire.

Don't know which questionnaire to complete? Contact the Off Payroll Working (IR35) Team.

Who should complete the Off Payroll Working (IR35) Questionnaire

The accuracy of the information provided via the Off Payroll Working (IR35) Questionnaire is essential to the precision of the employment status determination outcome undertaken by the Off Payroll Working (IR35) Team. The questions asked in relation to Employment Status, require detailed understanding of how the working arrangements will actually take place in practice. The individual completing the questionnaire should ensure they have obtained these accurate details before they start.

Need help to complete the questionnaire?  Contact the Off Payroll Working (IR35) Team.

Please note: Any deliberate attempts to manipulate/falsify responses to the questions within the Off Payroll Working (IR35) Questionnaires, to achieve a preferred employment status outcome, would be considered as a breach of the University’s Financial Regulations (SIA 26) and may be subject to disciplinary action.

Understanding employment status

Many of the questions within the questionnaires require detailed understanding of how the working arrangements will actually take place in practice. To help you to understand the reasons why you are being asked these questions, it is important to recognise the factors which are considered when determining an individual’s employment status.

Degree of control

This relates to the extent of which the University is able to and/or does exercise control over:what the worker does;

  • how the worker carries out the work;
  • when the worker undertakes the work, and;
  • where the worker undertakes the work. In practice control may not need to be exercised but the University would have the right to instruct the individual.

Personal service / right of substitution

Would you need that specific individual to undertake the work or, if they were unavailable, could they provide a substitute to undertake the work on their behalf?

It is likely that departments would want personal service and they would look for an alternative worker themselves if the specific individual was unavailable. This is not a right of substitution by the worker, if it is the University that would seek an alternate worker.

Mutuality of obligation

Is the University obliged to offer work to the individual and is the individual obliged to accept the work?

  • It would be more likely that, for longer contacts/arrangements, there would be mutuality of obligation present.
  • It would be more likely that, for short/ad hoc arrangements, there would be no mutuality of obligation present.

Financial risk

Will the individual incur financial risk by accepting/undertaking the work?

Examples of this would be:

  • Incurring significant expenses by accepting the work e.g. purchase of equipment.
  • Requires own insurance;
  • Only paid once work is completed;
  • If the work was unsatisfactory, they would be required to correct this at their own cost.

Length of engagement

This relates to how embedded an individual may become at the University, due to the length of their engagement. This may be because, over time, they are treated more like an employee or are working for the University for so long, they have not been able/not needed to accept work from anywhere else.

Degree of integration into the organisation

This relates to how integrated an individual becomes within the University. Examples to show degrees of integration would be:

  • Are they invited to team meetings;
  • Do they have a University phone line/email address;
  • Do they have a desk/office at the University;
  • Are they expected to adhere to the same policies or procedures as University employees;
  • Do they have a University employee as their line manager;
  • Do they line manage or supervise University employees;
  • Do they receive employee-type benefits, similar to the benefits as University employees receive.
When is a fully completed Employment Status Questionnaire not required?

There are some engagements where the outcome of an assessment of the employment status for a particular worker role is known in advance, usually because it is a common University role that recurs, how it should be treated for employment status purposes has been reviewed and the role does not change with each worker engaged to undertake the same role.

In other arrangements, the University has clear contractual terms in place to manage its Off Payroll Working and IR35 regulations, for example where we engage staff through temporary staffing agencies, the workers from the agency are filling University staff resource gaps so the arrangements with the staff agencies fall within IR35.

In both these situations, the University has the same legal obligation to determine the employment status of the worker and, where the IR35 rules apply, inform the worker and the intermediary of the determination and ensure that PAYE and NICs is deducted. This will be done by the Off Payroll Working (IR35) Team but will not generally require a fully completed questionnaire.

1. Common roles

Please refer to the common roles guidance.

If you have any queries about setting up or using the University’s common roles, please contact the Off Payroll Working (IR35) Team will be able to assist you.

2. Workers provided by temporary employment or staffing agencies to fill gaps in University staff resources on a short term basis

If you are engaging a worker to fill a role and you are engaging the worker through one of the University’s preferred Temporary Recruitment Agencies, the agent is acting as an intermediary in this engagement and the IR35 rules must be considered before the worker is engaged and starts work.

In this case, it is usual that the roles have already been identified as employment type relationships, because the worker is filling gaps in University staff resources. You should not therefore need to complete an Employment Status Questionnaire for each worker supplied by the agent, because the outcome is already known.

The engagement through the intermediary must however be compliant with IR35 regulations and you should take the following steps to minimise the administration for the departments.

Contact the Off Payroll Working (IR35) Team to discuss the situation before completing a questionnaire.

The team will need details about each worker and the engagement, to maintain the central records that HMRC requires us to keep as evidence that we have reviewed the worker’s status in the role.

The central team will write to the worker and the agent to confirm each new worker’s employment status under IR35 regulations.

The terms of the contracts with the University’s preferred Temporary Recruitment Agencies manage the PAYE and NIC deductions necessary for the intermediary arrangement to comply with Off Payroll Working / IR35 regulations.

In this situation, the staffing agent can be set up as a vendor in SAP.

We are still developing these webpages and would welcome any feedback to improve our guidance for those using the Off Payroll Working (IR35) procedures. Please share any suggestions with the team on IR35@sheffield.ac.uk.

Common roles

 

Common roles

The University has developed a common roles process as a tool to help simplify the decision process to determine the appropriate employment status for certain roles which are common throughout the higher education sector or within our University.

This approach also aims to minimise the administration for departments with repeating roles, where the outcome of the employment status determination (CEST) will be the same for any individual undertaking that role; the employment status determination of the role will not change by worker.

Click here for guidance on common roles

A "common role" is a role where the essential service requirements will not change irrespective of the worker engaged to carry them out. The role description will be the same for every worker undertaking the role, with the same relationship with the University, irrespective of the individual worker.

A "common role" can be identified as a role which:

  • Is undertaken regularly, in your department or throughout the University;
  • Has the same requirements each time you need the service;
  • Is managed in the same way i.e. the arrangements made between the University (your department) and the worker (the individual you engage to carry out the role) in relation to how the work is undertaken;

If you have a role which meets this criteria, then you may create a "common role" for use by your department.

In some cases, “common roles” can be created for use across the University. 

Need advice? Contact the Off Payroll Working (IR35) Team.

 FAQs

Frequently asked questions on off payroll working (IR35)

The Off Payroll Working (IR35) Team are currently developing further Frequently Asked Questions (FAQs) to support the policy and procedure, which will be effective from 1 April 2021.

The following frequently asked questions (FAQs) may help you with common queries.

If the worker is already a vendor at the University, do I still need to complete the Off Payroll Working (IR35) Questionnaire?

Yes. It is necessary to undertake a new employment status determination each time a worker is engaged to undertake a new assignment, as the arrangements may be different.

If the worker is a sole trader (self-employed) do I still need to complete the Off Payroll Working (IR35) Questionnaire?

Yes - you will need to complete ESQ1. The Off Payroll Working (IR35) team will need to undertake an employment status determination to determine if the worker has an employment or self employment relationship with the University.

Do departments need to complete the questionnaire when we use employment agencies on a regular basis, to provide workers on a short term, temporary basis to fill staffing resource gaps?

Where the worker is engaged through an agent and the agent makes the payments to the worker, the University is legally required to provide the agent with a status determination for each worker.

This is so we can tell the agent to deduct tax and NIC when it pays the worker if appropriate to the engagement. However, in such employment agency engagements, the worker is usually filling a staff post to help with temporary resource issues; the decision that the worker would be an employee if engaged directly by the University has already been made and therefore the IR35 rules will apply to the arrangement with the agent as the intermediary.

The Off Payroll Working (IR35) Team will provide a standard letter to the University’s preferred recruitment agents to manage these regular engagements to confirm its determination that all workers the agents provide to the University, to fill staff posts on a temporary basis, are considered to have an employment type relationship with the University.

If this is the situation you have (for example you are using Adecco or Hays to find workers) please contact the Off Payroll Working (IR35) Team before completing the questionnaire.

You will not need to complete a questionnaire in this situation, because the outcome of the status determination is already known. However HMRC requires the University to keep evidence that it has considered the employment status of each worker, so the Off Payroll Working (IR35) Team will ask you for the details it needs of each of the workers you have engaged in this way.

When will an ‘agency’ require an employment status determination assessment?

The status of all workers provided through an agency must be assessed to identify those that we determine have an employment type relationship with the University.  Whether the University determines there is an employment type relationship and therefore the engagement falls within IR35, or that the worker is acting as a self-employed contractor in providing services, the University must provide a status determination to both the worker and the agent to comply with the Off Payroll Working / IR35 regulations.

If the University determines there is an employment relationship then under the standard terms and conditions of engaging with the University, the agent will be responsible for applying PAYE and NIC to payments it makes to the worker (the University will pay the agency as a vendor).

Where the role is a standard, repeating role often filled by the agency, the Off Payroll Working (IR35) Team can draft a standard CEST against the role description, to minimise the need to complete ESQ2 for workers undertaking the same role through the agent.

Do the Off Payroll Working (IR35) Regulations apply to overseas workers as well as those based in the UK?

The Off Payroll Working regulations do not apply to overseas intermediaries such as agencies based overseas or foreign personal service companies. However, there are some overseas circumstances where the regulations may apply. If you have an overseas engagement, please contact the Off Payroll Working (IR35) Team to confirm before proceeding.

Will workers/suppliers understand the Off Payroll Working (IR35) process?

Workers/suppliers should be aware of the Off Payroll Working (IR35) Regulations.

The worker/supplier can find out more information via the HMRC website, including checking their own status.

What if the individual refuses to complete the work unless they are paid as self-employed with no deduction of tax and national insurance?

The University is legally required to determine the status of all workers with whom it engages, whether as individuals or through agencies or personal service companies; it is not the worker’s decision. The University is then legally obligated to deduct tax and National Insurance (NI) if it believes the role is an employment type role, in line with Off Payroll Working Regulations. The individual has the right to accept or decline the offer of work under the terms specified but has no right of appeal against the status determination made by the University, as the engaging party, unless the engagement is through an intermediary. Where engagements are disputed, please contact the Off Payroll Working (IR35) Team for support.

The supplier only provides goods, do I still need to complete the Off Payroll Working (IR35) Questionnaire?

If the supplier is only providing goods then the completion of the Off Payroll Working (IR35) Questionnaire is not required.

If the supplier is providing goods and services, please contact the Off Payroll Working (IR35) Team.

Need advice? Contact the Off Payroll Working (IR35) Team.

We are still developing these webpages and would welcome any feedback to improve our guidance for those using the Off Payroll Working (IR35) procedures.   Please share any suggestions with the team on IR35@sheffield.ac.uk