Engagement of self employed consultants

Purpose and Principles

1. This document summarises the general considerations of contracts for services (‘self-employed’/’consultancy’) and contracts of service (‘employment’). In particular, it advises of national insurance obligations and procedures relating solely to the engagement of individuals on a ‘self-employed’/’consultancy’ basis (a ‘contract for services’) to undertake teaching.

2. Colleges and Services are reminded that, to meet the requirements of employment law and tax law and to safeguard the University’s position as an employer, the University expects most individuals engaged to work by the University to be employed in accordance with standard employment arrangements (ie on a contract of employment approved via the SR1 process). The claims payroll should only be used for engagements which are ad hoc or of very short duration. Individuals will be treated as ‘workers’ (with tax and National Insurance deducted at source) unless the Director of Human Resources is satisfied that the arrangement is genuinely one of a contract for services (ie self-employed) rather than a contract of services.

Engagement of Self-Employed Consultants

3. Exceptionally, when the nature of the arrangement meets the criteria to be classed as a contract for services (see paragraph 8 below) the relationship between the University and the individual will not be an employment relationship (‘a contract of service’) but will be a ‘contract for services’ (ie a self-employed or independent contractor may be engaged). The law on self-employment is complex and the consequences of wrongly treating someone as self-employed when the nature of the engagement is subsequently deemed to be a contract of service can be significant. HM Revenue and Customs (HMRC) may seek to reclaim tax and national insurance contributions together with interest and penalties from the employer and there are a wide range of employment rights which may need to be compensated (including the right to paid holidays, notice, redundancy payments and not to be unfairly dismissed).

4. Colleges and Services should note that HMRC regulations provide for a teacher who teaches in an educational establishment to be treated as an employed earner for national insurance purposes even when the engagement is a contract for services (self employment) if they teach in the presence of their students unless, prior to giving the instruction, they have agreed to give it on not more than 3 days in 3 consecutive months, or the instruction is given as public lectures. (A public lecture is regarded as one which anyone can attend; that is, it is not part of a course or confined to a particular group or society.) Therefore, in all cases, it will be necessary to deduct class 1 national insurance from individuals engaged to teach. Similarly, HM Revenue and Customs regulations state that fees paid to external examiners on first degree programmes examiners are chargeable to tax and subject to PAYE in the normal way.

Employed or Self-Employed?

5. HMRC publish guidance for employers to assist in determining whether the nature of the engagement is a contract of service (worker) or under a contract for services (self-employed, independent contractor). It is necessary to examine the real nature of the relationship: what the parties call their relationship, or what they consider it to be, is not conclusive.

6. As a general guide, if the answer is 'Yes' to the following questions, then the worker is probably an worker:

Do they have to do the work themselves?
Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
Are they required to work a set amount of hours?
Can someone move them from task to task?
Are they paid by the hour, week, or month?
Can they get overtime pay or bonus payment?

If the answer is “No” to the questions above but 'Yes' to the following questions, it will usually mean that the worker is self-employed:

Can they hire someone to do the work or engage helpers at their own expense?
Do they risk their own money?
Do they provide the main items of equipment they need to do their job, not just the small tools that many workers provide for themselves?
Do they agree to do a job for a fixed price regardless of how long the job may take?
Can they decide what work to do, how and when to do the work and where to provide the services?
Do they regularly work for a number of different people?
Do they have to correct unsatisfactory work in their own time and at their own expense?

7. The University’s policy is that it will only engage an individual under a contract for services (self-employment) where the provider of the service is able to satisfy the University that they are registered with HMRC as self-employed for the purposes of the work to be undertaken for the University. The individual should complete form and Human Resources may ask to see a copy of a letter issued by HMRC. Colleges and Services should note that a person who is self-employed doing one type of work is not thereby treated as self-employed for all work that they undertake.

8. In all cases when the proposed supplier is an individual or partnership (ie not a limited company or public body) – even if they are trading under a ‘business name’ - Colleges and Services are advised to consult with the Pay and Benefits in Human Resources before confirming the arrangement as a contract for services.

9. Colleges and Services should note that it is very unlikely that HMRC will accept that an individual who is employed by the University can also act as a self-employed consultant supplying services to the University. In most cases, where such additional work is approved (see the Procedure for Payment to Academic Staff for Additional Teaching) any additional payment will be paid through the payroll and be subject to statutory deductions. Colleges and Services should seek advice from Human Resources before offering additional work to full-time staff.

Administrative Arrangements for Self-Employed Consultants

10. When the College or service is satisfied that the nature of the engagement is one of a contract for services and where the supplier is registered with HMRC as self employed (and the individual has supplied form PD91), there should be a written agreement between the University (signed by the Dean of College/Service or designate) and the self-employed supplier, specifying the service to be provided and the fee. (See model contract pro-forma PD84, which has been worded to minimise the possibility that HMRC or a Tribunal/Court may construe it as a contract of employment). An order should also be raised on the Aptos system. See Self employment flowchart .

11. Where the arrangement is with a company, the same standard contract for services should be used. An order should also be raised on the Aptos system. Invoices must be issued in the name of the company and payment will only be made (through the Aptos system) to an account in the name of a company.

12. The supplier will have to submit itemised invoices for payment on completion of the work and payment will only be made to the account of the supplier named on the contract. Payments will be made through the Aptos system. These arrangements will be excluded from the HESA staff return. The completed form PD91 should be sent to Accounts Payable with invoices for payment.

13. Colleges/Services are reminded of the requirements of the University Financial Handbook regarding the purchasing of services, which should be followed when engaging consultants. The following extracts from the Financial Handbook summarise the University’s requirements: Colleges/Services should consult the Handbook for the detailed requirements regarding quotations and tenders.

Competitive pricing must be obtained for identical goods and or services to enable comparisons of bids on a 'like for like' basis and to avoid any accusation of bias towards one supplier and facilitates the identification of the best value bid
For ‘spot purchases’ with an estimated value of less than £5,000 (excluding VAT), prices to supply the service(s) may be sought from three potential suppliers by telephone and the purchase order should be awarded to the supplier offering the best value in terms of the overall procurement. Three competitive quotations should be obtained from potential suppliers for services valued between £5,000 and £25,000 (excluding VAT). For services valued over £25,000 (excluding VAT), three tenders should be obtained from potential suppliers. (The estimated value is calculated by totalling the value of the services to be supplied in either one delivery or in a number of deliveries over a period of time.)
Quotations and tenders may be dispensed with in certain circumstances:

there would be no genuine competition;
the contract is for work to be executed or goods or materials to be supplied that are certified by the Dean of College/Director of Professional Service concerned as being required so urgently as not to permit the invitation of quotations and tenders.

If a College or Service wants to dispense with a quotation or tender, the single-source authority form (available on the Procurement web-site) should be completed and approved. When the value of the transaction is over £25,000, the form is to be sent to the Head of Procurement for approval. When the value of the transaction is between £5,000 and £25,000, the form may be approved by the Dean of College and below £5,000, it may be approved by the College Manager.

Orders for goods or services must be placed through the approved University systems of APTOS, Parabilis or purchasing card. These methods protect the University’s funds, form an auditable record of the agreement and reduce the risk of fraud and double-invoicing.

Guidance on Best Value and Teaching Quality for engagement of self-employed teachers

Before contracting-out teaching to individuals who are not employed by the University, Colleges should ensure there is evidence of the competence of the provider to teach to the required standard. This can be assessed through one or more of the following:

interview (interviews should be undertaken by at least two members of staff who are responsible for the module/programme)
references from other HEIs
student feedback and/or peer observation (where the provider has been used previously by the University)
CV showing qualifications and teaching assignments undertaken elsewhere.

Modules taught by self-employed providers should be subject to the same student evaluation procedures and peer observation as other programmes/modules and the outcomes of such reviews, together with any relevant comments made by External Examiners and/or Examination Boards, should be taken into account before any further work is offered to them.

Members of staff should not be directly involved in decision-making in cases where work is offered to their former colleagues, close friends or family of staff. Where this is not possible, because they have lead responsibility for the module/programme, they should ensure that senior staff are involved in the decision-making progress.

While it is recognised that the specialist nature of such teaching assignments will (in most cases) prevent Colleges from seeking quotations from more than one supplier, Colleges should consider other methods of assessing that the arrangement is 'best value'. For example:

Is the rate for the work commensurate with the rate that would be paid to an occasional teacher or a contracted member of staff?
What evidence is there that a market premium is justified?
What negotiation has taken place with the provider about price before the contract is agreed?

Right to Work Checks for self employed consultants and teachers

Right to Work checks are only required for employees, so they are not required for self-employed consultants and teachers. However, because employment status can be a grey area, the UK Border Agency suggest that employers might wish to consider undertaking right to work checks for individuals engaged on a self-employed basis. To minimise risk, Colleges are recommended to undertake Right to Work checks on self-employed consultants and teachers.