Understanding Off-Payroll Working

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Understanding Off-Payroll Working

This guide will break down all things to do with off-payroll working (also known as IR35). It will look at what it is, what the rules are, who they apply to, and when they apply.

Trust us, it’s not as complicated as it sounds.

What is Off-Payroll Working?

If you are not directly employed by a company or business, you will usually be classed as a client or contractor.

In these instances, there are rules that ensure an individual makes the appropriate submissions and payments to HMRC. These are known as ‘off-payroll’ rules, often referred to by the HMRC term ‘IR35’.

Your accountant will be able to advise you on the IR35 regulations but there is also an in-depth guide on the gov.uk website which we summarise here. 

What Are Off-Payroll Working Rules?

The off-payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through their own limited company or another type of intermediary to the client.

An intermediary will usually be the worker’s own personal service company, but could also be any of the following:

  • a partnership
  • a personal service company
  • an individual

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’.

The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client.

The client will be responsible for determining if the off-payroll or IR35 working rules apply.

You should be aware that there are people that wrongly offer to get around the off-payroll rules.

The motive for this will often be to ensure that the contractor pays less tax and as such these offers may constitute an attempt to avoid the full payment of tax.

The gov.uk website has a useful guide that will help you find out how to recognise tax avoidance schemes aimed at contractors and agency workers.

Who Do Off-Payroll Working Rules Apply To? 

You may be affected by these rules if you are:

  • a worker who provides their services through their intermediary
  • a client who receives services from a worker through their intermediary
  • an agency providing workers’ services through their intermediary

If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.

Your accountant should advise you on the most appropriate employment status for you.

You can visit the gov.uk Check Employment Status for Tax service to help you decide if the off-payroll working rules apply.

Employment status for tax purposes is whether a worker is employed or self-employed. It’s used to determine the taxes the worker and client need to pay.

When Do Off-Payroll Working Rules Apply?

The rules apply if a worker provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly.

A contract for the purpose of the off-payroll working rules is a written, verbal or implied agreement between parties.

The off-payroll working rules apply on a contract-by-contract basis so a worker may have some contracts which fall within the off-payroll working rules and some which do not. The eligibility rules (before and after April 2021) are briefly summarised below.

Before 6 April 2021

If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.

If you’re a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract.

The private sector includes third sector organisations, such as some charities.

From 6 April 2021

From 6 April 2021 the way the rules are applied will change.

All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.

If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.

See not too bad right?

If you’re unsure if off-payroll working applies to you remember to have a look on gov.uk to make sure you’re paying the correct tax.

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