Payments to individuals who are self employed are taxed differently from those made to employees. Because there are differences, HM Revenue and Customs (HMRC) will often check to see whether individuals have been correctly treated as being self employed.

The cost to the University of making an incorrect employment decision can be more than 50% of the amount already paid to the individual.

Thus a payment of £10,000 for services provided can at a later date attract additional tax of £5,000 plus interest and penalties. This may arise after the original budget has been spent or the research grant closed, and may cover a period of several years.

It is therefore increasingly important to establish whether paying an individual directly on a self-employed basis rather than through payroll is allowable.