NIC and PAYE Liabilities For Teachers, Lecturers and Instructors
It has been brought to our attention that HM Revenue & Customs (“HMRC”) are targeting employers such as schools and local authorities on the issue of the status (PAYE and NIC treatment) of visiting teachers, lecturers and instructors (“teachers”). It is clear that most of these employers are not applying the correct treatment, which can differ for PAYE and NIC purposes.
Quite clearly, where teachers are engaged under a Contract of Service, whether full or part-time, they will be deemed to be employees for PAYE and Class 1 NIC purposes.
However, when engaging special teachers such as invigilators, peripatetic music teachers, French teachers, elocution teachers, sports coaches, etc the following guidelines need to be followed.
The relevant legislation is at paragraph 4 of Part 1 of Schedule 1 to the Social Security (Categorisation of Earners) Regulations 1978. How widely can these provisions be applied? In very simple terms, where instruction is given at an educational establishment for more than 3 days in a 3 month period, the teacher is an employee for NIC purposes and Class 1 NIC is payable.
For the purposes of this legislation, an educational establishment is defined as including “a place where instruction is provided in any course or part of a course designed to lead to a certificate, diploma degree or professional qualification”.
Careful reading of the provisions shows that it is not the instruction or the qualification that is relevant, but where it is given. Any instruction in an educational establishment makes the teacher an employee irrespective of what is taught. Such a wide interpretation is supported in a NIC appeal case concerning St John’s College School.
This also applies where, for example, a local authority runs an evening class in a school, the teacher should be treated as an employee. The only exception to this is where the attendees pay the teacher directly.
In essence, a school will always be an educational establishment and any teacher engaged for more than the 3 days in a 3 month period should be treated as an employee and Class 1 NIC deducted. Many schools and authorities have not been paying Class 1 NIC in such circumstances and so may be exposed to considerate arrears and penalties.
If a teacher works on a full or part-time basis, supplying services on terms similar to other teachers, then PAYE must be deducted from the payment to the teacher.
If a teacher is engaged on terms not similar to other teachers, the tax treatment depends on a number of factors and each engagement should be considered on its own facts, taking into account such matters as:
- Control (or right of control) over conduct and discipline, hours of attendance, where and when lessons are given, course content, etc.
- Whether the teacher must undertake the lecturing personally or whether the teacher can send a replacement
- Who is to supply the equipment necessary (e.g. overhead projector, course materials) and at whose expense
- Whether any financial risk attaches to the engagement and who bears the risk
- The intention of the parties to the engagement
Very broadly, such a part-time teacher engaged in a school on a basis not exceeding 3 days in a 3-month period may be paid gross (and no Class 1 NIC is payable). However, if the work is for more than 3 days in a 3-month period, then the school should operate PAYE and whether the part-time teacher can be paid gross depends upon the tax code issued by HMRC.
If the part-time teachers can demonstrate to HMRC that they have a series of similar short-term engagements at different establishments and they adopt a business-like approach, HMRC will issue an NT (no tax) PAYE code and payment can be made gross. If HMRC is not convinced the teachers have similar income from other establishments or other income from providing similar lessons say, in their own home, HMRC will issue an appropriate PAYE code for tax to be deducted from the payment.
Theoretically, the part-time teachers are deemed employees at each school at which they provide their services. It is therefore necessary for the school to apply the usual P45/P46 procedures in such cases. For your information, a flowchart is attached to provide guidance when determining the tax treatment of such individuals.
Unlike NIC, the tax treatment is not as straight forward and the engagement of such part-time or peripatetic teachers will need careful consideration. Failure to do so may expose the school to the payment of arrears of PAYE.