March 31 2021

United Kingdom: Understanding off-payroll working (IR35)

Off-payroll working rules for clients, workers (contractors) and their intermediaries

The 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 Income 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 working rules apply.

Get help on the off-payroll working rules (IR35) with webinars, guidance and resources from HMRC.

You may be offered schemes that wrongly claim to get around the off-payroll working rules. Find out how to recognise tax avoidance schemes aimed at contractors and agency workers.

Who the 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, Income Tax and employee National Insurance contributions must be deducted from fees and paid to HMRC. In addition, employer National Insurance contributions and Apprenticeship Levy, if applicable, must also be paid to HMRC.

You can use the 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 the 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.

The changes to the off-payroll rules were due to come into effect on 6 April 2020. This has now been delayed until April 2021 because of the spread of the coronavirus (COVID-19) pandemic. The delay is to help businesses and individuals deal with the economic impact of coronavirus.

The delay to the introduction of the changes is not a cancellation.

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. A worker may have some contracts which fall within the off-payroll working rules and some which do not.

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.

Source: HM Revenue & Customs