IR35 "Off-payroll" tax changes for personal service providers
How revised HMRC IR35 intermediaries rules may affect certain personal service providers at the University.
IR35 tax legislation & procurement
UK public sector organisations who engage intermediaries (e.g. individuals who work via a Personal Service Company, their own limited company, a partnership or certain agencies) now have increased responsibilities under new legislative measures introduced in April 2017.
The off-payroll working rules (also known as IR35, or ‘the intermediaries legislation’) have been introduced to ensure that, where an individual would have been classed as an employee if they were providing their services directly (i.e. not through an intermediary), they pay broadly the same tax and National Insurance contributions (NICs) as an employee.
Under the new rules, the University of Edinburgh (or one of its subsidiaries) is responsible for assessing whether the IR35 rules apply when it engages a contractor through an intermediary.
Where a person is assessed as being within the new rules, this means the supplier will have to be paid through our payroll system for the services they provide, instead of through a purchase order/invoice. This may entail additional costs to both the University and the supplier, as payroll payments are subject to withholding for PAYE tax and employee National Insurance Contributions (NIC). Additionally, the University will have to pay an employer NIC and an apprenticeship levy cost.
Why buyers need to know about IR35
The University is responsible for ensuring that suppliers who are within the IR35 legislation are paying the correct amount of tax. If we do not and are later identified by HMRC as non-compliant, the taxes and fines could potentially be considerable. Therefore, it is important we confirm supplier payment information before they can start working for us.
What kinds of services are likely to be in scope of IR35?
Individuals who provide their personal services to the University, even if it is on a temporary basis (e.g. certain consultants, specialists, project managers or training providers) via an intermediary, for example their own limited company or a personal service company, partnership, or an agency or other third party, may fall within the scope of the IR35.
The rules don’t apply where we are fully contracting out services to a third party (such as an outsourcing company) and the personal services of named/selected workers does not form part of the scope of our requirements.
IR35 & purchasing under £50,000
Please see the IR35 procurement workflow for instructions
If you would like to engage service providers that may be in scope of IR35 and your requirement is below £50,000 (before VAT), please use the following combined IR35 Invitation to Quote and “3 Quotes” Templates [MO Word Doc] to obtain at least 3 quotations from service providers to demonstrate value for money (click here for more info on requesting quotes).
The adapted IR35 ITQ template contains a one page form where bidders confirm their tax status and a modified pricing schedule that will automatically calculate likely IR35 tax liabilities. In the pricing schedule, IR35 bidders must submit their quoted prices as a daily labour rate along with the estimated total number of days they will provide their service.
Prior to requesting quotes, and in order to determine if IR35 is likely to apply to your personal service requirement, buyers should complete the Employment Status Questionnaire—Future Engagements form (available on the Payroll Office website) about the services they wish to procure, and must submit the completed form to the Payroll Office (email: firstname.lastname@example.org). The Payroll Office will conduct an official IR35 status check at this stage and inform the buyer of the outcome. Please contact the Payroll Office with any questions about the use of this form.
COVID-19 Update: within the above mentioned Employment Status Questionnaire form there is a question asking about the location of the individual/s whilst they are undertaking the contracted work for the University. The form should be completed stating what the location of work would be under normal circumstances (outside of COVID-19 lockdown).
IR35 & purchasing £50,000 and above
All procurements £50,000 and above must be led by the Procurement Office. If you would like to engage service providers that may be in scope of IR35 and your requirement is £50,000 (before VAT) or above, please contact Stuart McLean (email@example.com), professional services procurement category manager. Any procurement-led process will take account of IR35, if applicable.
New supplier setup process
After the tendering or quotation process is complete and before a purchase order is issued, new suppliers will need to be set up on the University’s financial system. Under £50,000, if the buyer has not already completed the Employment Status Questionnaire and submitted to the Payroll Office they should do so prior to informing the winning bidder, as the outcome of this assessment will determine how the service provider is paid. If service providers have categorised their tax status incorrectly, they may be required to amend information in their bids.
If procuring consultancy type services or personnel, please see our Guidance on procuring Consultants and other 'Personal Service Providers' and ensure that you follow any central or local HR policies where people are being engaged. For further queries about the procurement of personal service providers, please contact Professional Services category manager, Stuart McLean (firstname.lastname@example.org).