Guidance

Public sector off-payroll working for intermediaries and contractors

Find out about the off-payroll working rules (IR35) if you're a contractor or an intermediary and your worker provides services to a public sector client.

This guidance was withdrawn on

This page has been withdrawn because it’s out of date. You can read about the off-payroll working rules for intermediaries and contractors at Off-payroll working for intermediaries and contractors providing services to the public sector or medium and large clients in the private sector.

The off-payroll working rules changed from 6 April 2021. Find out how the new rules apply to intermediaries and contractors.

Overview

The off-payroll working rules:

  • apply if a worker provides services to a client through an intermediary, but would be classed as an employee if they were contracted directly
  • make sure that workers pay broadly the same Income Tax and National Insurance contributions as an employee

An intermediary is a party who makes arrangements for, or pays, an individual to work for a third party. The off-payroll working rules apply to a worker’s intermediary.

The 3 different types of intermediary that workers can provide their services through are:

  • a limited company, usually known as a personal service company (PSC)
  • a partnership
  • an individual through a non-corporate relationship – also known as an ‘unincorporated body’

A PSC is a type of intermediary where the worker has a ‘material interest’ in a company. This usually means the worker is either:

  • the director of the company
  • able to control more than 5% of the ordinary share capital of the company, directly or indirectly

Working through an umbrella company

The off-payroll working rules are unlikely to apply if you are employed by an umbrella company.

Find more information on what umbrella companies are and what they mean for you.

Who decides if the rules apply

If you provide services through an intermediary to a public authority client, the client must decide if the off-payroll working rules apply.

If the rules apply, Income Tax and employee National Insurance contributions will be deducted from the payments received for your worker’s services.

What you need to do

You’ll need to:

  • give the deemed employer the information they need to deduct Income Tax and employee National Insurance contributions from the payment they make
  • report to HMRC on your worker’s and your business’s tax affairs

You’ll need to account for and pay Income Tax and National Insurance differently if you provide services for private sector clients.

Payments received from the deemed employer

In most cases the party paying a worker’s intermediary will be the fee-payer, but could be another party in the labour supply chain.

The fee-payer is the lowest party in the labour supply chain above the intermediary.

The deemed employer pays the worker’s intermediary and usually deducts Income Tax and employee National Insurance contributions and pays HMRC.

They will also pay employer National Insurance contributions and Apprenticeship Levy, if applicable, on top of the payment to the worker’s intermediary. This cannot be deducted from the payment to the worker’s intermediary.

If you’re VAT registered, the deemed employer will pay VAT and then deduct Income Tax and employee National Insurance contributions from your fee. This means the payment you receive will have had Income Tax and employee National Insurance deducted.

For example:

  1. You invoice the deemed employer for £7,200 for the worker’s services provided (£6,000 fees and £1,200 VAT).
  2. From the worker’s fees of £6,000, the deemed employer deducts £1,613 (£1,200 tax at 20% basic rate and £413 employee National Insurance contributions) which it pays to HMRC.
  3. You receive a payment of £4,387 for the services plus £1,200 VAT.
  4. The deemed employer also pays employer National Insurance contributions.

If the deemed employer is outside the UK, different rules apply.

Pay a worker through their intermediary

If the off-payroll working rules apply the payment for your worker’s services will have had Income Tax and employee National Insurance contributions deducted from it. This means that when you pay the worker you do not need to deduct Income Tax and National Insurance contributions again from those fees.

You can do this by either paying it as:

  • a salary through your payroll but do not deduct Income Tax or National Insurance contributions
  • dividends – these do not need to be recorded on your worker’s Income Tax Self Assessment return

As the amounts have already been treated as employment income doing it this way will avoid any double payment of Income Tax or National Insurance contributions.

Report any non-taxable payments you make to the worker using the Full Payment Submission. Your payroll software will produce this.

Corporation Tax calculations

When you calculate your company’s taxable profit, you should deduct the VAT exclusive amount of the invoice. This is the amount from which Income Tax and employee National Insurance contributions were deducted at source.

Your company accounts should show this deduction to make sure the amount is not taxed twice.

VAT

If you’re VAT registered, you should continue to include VAT in your invoices. You’ll need to file your VAT Returns and pay HMRC any VAT payments that are due.

Updates to this page

Published 3 February 2017
Last updated 29 April 2021 + show all updates
  1. Information has been added about working through an umbrella company.

  2. Information about a delay due to the coronavirus (COVID-19) pandemic updated to reflect changes from 6 April 2021.

  3. We have updated the title to make clear that this guidance also applies to contractors.

  4. This page has been updated to reflect the delay to the changes to the off-payroll working rules until 6 April 2021.

  5. The guidance has been updated to reflect there are changes to how the off-payroll working rules will be applied from 6 April 2020.

  6. Guidance on reporting non-taxable payments in your salary has been updated.

  7. If you use Basic PAYE Tools, you don't need to report non-taxable payments your company made to you.

  8. First published.

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