Introduction
The Inland Revenue are planning to issue guidance in their next Tax Bulletin, due in December, on the issue of teachers and the application of IR35.
The Inland Revenue have woken up to the fact that many of these companies are unaware of the special rules that apply to teachers.
In recent years there has been considerable growth in the numbers of teachers working through service companies – frequently using composite companies.
The Inland Revenue have woken up to the fact that many of these composite companies are unaware of, or ignoring, the special rules that apply to teachers.
Composite Companies
These are service companies where contractors are both employees and shareholders.
Typically the contractor is paid just above the National Minimum Wage, claims the usual employee expenses and takes the bulk of their rewards as dividends – based upon the profits (fees minues expenses) they have generated.
Composites are managed by a separate management organisation that handles all the invoicing, administration, payroll and corporate responsibilities.
Teachers
Teachers using a service company and hoping to work outside IR35 face two particular problems.
Firstly, it is questionable whether many teachers, especially supply teachers who seem to be the bulk of the teachers involved, are operating on a basis that legitimately takes them outside the employment status tests.
Secondly, the vast majority of teachers face a specific problem. They are deemed by legislation to be “employed earners” for National Insurance purposes. Even where a teacher is working in a self-employed manner through their service or composite company, if they meet the legislative definition of a teacher within the National Insurance regulations, they are within IR35 for NICs (even if they are outside it for tax).
Teachers and self employment
In most situations it is difficult for a teacher to claim to pass the status tests for self employment when applying IR35.
This is because, if you ignore any intermediary, then the hypothetical relationship with the school or college is highly likely to include features that are strongly indicative of employment.
Key amongst these are issues of supervision, direction and control and personal service.
In the context of supply teachers teaching in mainstream educational establishments, they are usually subject to tight controls by the school. Control over what, when, where and how to conduct their classes. These controls stem from the strict requirements to follow the syllabus and the agreed teaching plans.
National insurance deemed employment
Not only is it difficult for a teacher to work in a self employed manner but there are also special regulations which deems teachers to be employed for National insurance purposes. These regulations take precedence over the case law on employment and self employment.
Conclusions and recommendations
Teachers who currently work through a service company and who are currently being told they can operate as being outside IR35 should take review their position.
They may have tax or NIC liabilities. The composites and their managers are likely also to have undisclosed liabilities, and they should obtain advice without delay.
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