Recent discssions with a significant nnumber of schools have highlighted a potential time bomb for many education establishments when HMRC commence PAYE visits. The most prevalent issue surrounds the status of self-employed workers.
Recent discssions with a significant nnumber of schools have highlighted a potential time bomb for many education establishments when HMRC commence PAYE visits. The most prevalent issue surrounds the status of self-employed workers.
The issue revolves around the responsibility for the operation of PAYE transferring from the local authority to schools, who now have full control over their own finances. With that responsibility comes the need to consider much more than just the education of the pupils. In particular the operation of PAYE and NI within the school that was probably provided under the umbrealla of the local authority previously. Commonly we are finding that the knowledge within schools to comply with the raft of red tape may be lacking.
Outsourcing your payroll to an external provider doesn’t remove the need for you to comply with all aspects of PAYE and the fact that you are a school affords you no special consideration. You are required to comply with th elegislation as is every other business in the UK
HMRC place a heavy burden on all employers when engaging self-employed workers, to ensure the status of the worker has been carefully considered and is correct. Failure to do so will lead to HMRC reclassifying a self-employed worker as an employee. Why should that be a problem? Well, HMRC will seek the tax and National Insurance that should have been deducted from the moment that worker commenced with the engager, the school. This in some instances can cover many years.
Although the self-employed worker may have provided you with invoices and paid tax on the income, past Tax Cases, heard through the Tax tribunal system, have dictated that the ‘engager’ is still responsible for the PAYE. Following on from that, HMRC will then argue that year end returns have been submitted incorrectly and charge a penalty based on a percentage of the tax and National Insurance they are collecting.
Such issues would previously have been dealt with by the Local Authority and any payment due to HMRC would have come out of central funds. This is where the onus now reverts to individual schools. What would be the effect on your budgets to a large HMRC bill?
HMRC have already highlighted a growing emphasis on the education sector with a published aim that private tutors will be investigated to ensure their income has been fully declared. Such enquiries will no doubt consider status, particularly if a tutor fines themselves facing a heavy tax bill, which will probably involve an intrusive review of the engagers systems. It isn’t a great leap to see how those investigations could indeed spark specific enquiries into the wider education sector.
We therefore would recommend a critical review of the terms of engagement of all self-employed workers and suggest you utilise HMRC’s Employment Status Indicator. If you want to talk to us about any concerns, or you would like to commission a review of your self-employed workers please contact us here and ask about Payroll Protection.