The off-payroll working rules
The off-payroll working rules make sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would.
The rules apply if the worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly to that client.
The rules are sometimes known as ‘IR35’.
When the rules apply
The off-payroll working rules apply if a worker provides their services through their own intermediary (usually a limited company, often known as a PSC).
The person responsible for determining whether the worker is employed for tax purposes, depends on if the client is:
- in the public sector
- in the private and voluntary sectors
- is a small business
In most cases, the client will be responsible for determining the employment status of the worker. However, if a worker provides services to a small client outside the public sector, the worker’s intermediary is responsible for deciding the worker’s employment status and if the rules apply.
The rules about size only apply to clients. All agencies, regardless of size, will have some responsibilities where the off-payroll working rules apply,
What happens if the rules apply
The party responsible for applying the rules must determine whether the worker is employed for tax purposes. You can use the check employment status for tax (CEST) tool to help you make this determination.
A worker’s employment status for tax determines the taxes the worker and the deemed employer need to pay, depending on whether a worker is determined as employed or self-employed.
The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which are within the off-payroll working rules and some which are not. A contract for the purpose of the off-payroll working rules is a written, verbal, or implied agreement between parties.
If the rules apply, the client is responsible for determining the worker’s employment status for tax, and they should produce a status determination statement (SDS) including the reasons for their determination.
Get more help
You can get help on the off-payroll working rules (IR35) with webinars and resources from HMRC.
You can contact HMRC for help with enquiries about the off-payroll working rules or a full run-through of the check employment status for tax (CEST) tool.