Off payroll working rules

The off-payroll working rules can apply if a worker (or '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:

• 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. Public authorities became responsible for deciding if the rules applied from 6 April 2017 where they contracted workers who provide services through their own intermediary. The net of affected organisations was widened from 6 April 2021 when all public authorities and medium and large-sized clients outside the public sector are responsible for deciding if the rules apply.

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. A person may be affected by these rules if they 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 be paid to HMRC by the person who pays the worker's intermediary.

An individual's employment status for tax determines the taxes the worker and client, or the person paying the worker's intermediary need to pay, depending on whether a worker is employed or self-employed. 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. A worker may have some contracts which fall within the off-payroll working rules and some which do not.

The government has an assessment tool available on its website (called 'CEST'), but it does not give definitive results.

The recent government announcement that the IR35 rules would be repealed from April 2023 has caused confusion because shortly after the ill-fated announcement, the government stated that the rules would remain in force.

It is essential for employers to ensure that they properly assess the status of workers whom they engaged. Taking special advice could be a lifeline.

To discuss this or any other employment matter, contact us.