A PI plans to engage an individual to carry out short term work on a research project. The individual says that they are self-employed and will invoice the University. However, based on the work to be performed it is clear that the true nature of the relationship with the University is that of employment. However, when completing the Check Employment Status for Tax (CEST) tool, the department tweaks the answers until the response returned is self-employed to keep everyone happy.
Risks: Mis-categorisation of an individual as a self-employed contractor rather than employed
Individuals may wish to be classed as self-employed to minimise their employment taxes liabilities. Self-employed individuals pay lower rates of National Insurance on their profits and being self-employed enables them to deduct expenses not available
to employees thereby reducing the amount of income tax to be paid, additionally categorising individuals as self-employed reduces the University’s employment taxes burden as no employer’s NIC is payable.
If the individual, or the University, evades tax or National Insurance and was enabled to do so because the University’s processes, which would have identified that the individual was an employee and tax should have been withheld at source, were not
followed, the University could have committed the corporate criminal offence.
Any time an individual provides services for the University, the nature of the relationship must be assessed for that piece of work. The University (not the individual) is responsible for making this assessment, and it may change depending on the
assignment (i.e. the individual might be self-employed for some work but should be treated as employed for other work). The University has a duty to follow HMRC rules and must make the correct assessment and, if appropriate, withhold employment
taxes when paying the individual.