Off-payroll working for intermediaries and contractors providing services to small clients in the private sector
The off-payroll working rules if you are a contractor or an intermediary and your worker provides services to small clients in the private or voluntary sectors.
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.
Applying the off-payroll working rules
If your worker provides services to a public sector client, or a medium or large-sized client outside the public sector, they are responsible for operating the off-payroll working rules.
If your worker provides services to a small client outside of the public sector, you (the worker’s intermediary) will continue to be responsible for deciding your worker’s employment status.
If the off-payroll working rules apply, your worker’s fees will be subject to Income Tax and National Insurance contributions.
What you need to do
As the intermediary you will need to make an employment status determination for the worker to see if the off-payroll working rules will apply.
If the rules apply, you’ll need to work out a ‘deemed employment payment’. This is the amount deemed to be the income of the worker, after some deductions and employer National Insurance contributions have been removed.
The off-payroll working rules need to be considered by you or the client for each engagement your worker enters into. If during an engagement there is a change in the terms and conditions then you’ll need to reconsider if the rules continue to apply.
If the rules apply, you’ll need to:
- pay the employer National Insurance contributions to HMRC
- pay any tax and the employee National Insurance contributions due, at the end of the tax year
- take into account the deemed employment payment when paying Corporation Tax, paying dividends or operating the Construction Industry Scheme
Your worker will need to report information about these engagements to HMRC on their Self Assessment tax return. They also need to pay any other Income Tax and National Insurance contributions that are due.
Check if you need to work out the deemed employment payment
You need to work out how much you:
- received in the tax year from engagements where the off-payroll working rules apply
- paid your worker as employment income
You do not need to work out the deemed employment payment if:
- the amount you paid your worker as employment income for off-payroll working engagements is equal to the amount you received for their off-payroll working engagements in the tax year
- you paid the worker more employment income than the amount you received for their off-payroll working engagements in the tax year
Work out the deemed employment payment
To work out the deemed employment payment, you’ll need details of:
- the payments you received
- payments made to the worker such as salary or benefits in kind
- pension contributions made on behalf of the worker
- expenses you pay
You can find more information on what costs to include and deduct in the guide on how to work out the deemed employment payment.
If you supply the services of more than one worker to a client under the same contract, you’ll need to work out the deemed employment payment separately for each worker.
If a client makes a single payment to you for 2 or more workers for different engagements, the income received must be split proportionally.
If the deemed employment payment is a:
- negative number (or ‘0’) you do not need to pay any further Income Tax or National Insurance contributions, but you should keep evidence of your calculation and supporting information
- positive number you must pay Income Tax and Class 1 National Insurance contributions on this amount
You are responsible for paying the tax and the employer and employee Class 1 National Insurance contributions due on the deemed employment payment.
You can use your payroll software or Basic PAYE Tools to work out how much tax and National Insurance contributions need to be paid on the deemed employment payment. You can also use the Employer further guide to PAYE and National Insurance contributions.
Report payment
If you make salary payments to the worker during the year, report them to HMRC on a Full Payment Submission on or before the time of payment. If you do not make salary payments then return an Employer Payment Summary.
The deemed employment payment should be reported on a Full Payment Submission on or before 5 April each year.
You should include the deemed employment payment on a P60 form, which you must issue to employees by 31 May after the end of the tax year.
If you cannot accurately work out the deemed employment payment by the end of the tax year, you will have until the following 31 January to submit final figures and pay any balance of tax and National Insurance contributions due.
This only applies if you:
- report a provisional calculation of the deemed employment payment on a Full Payment Submission on or before 5 April
- make the appropriate payment of tax and National Insurance contributions to HMRC
- report final figures on an Earlier Year Update or further Full Payment Submission submitted on or before the 31 January following the end of the tax year
- pay a balancing payment of any additional tax and National Insurance contributions due by that date
In these circumstances, interest will be due on the balancing payment but not a late payment penalty. This concession on penalties will be reviewed annually and notice will be given if it is to be withdrawn.
Self Assessment tax return
The deemed employment payment is treated as your worker’s employment income from you (the intermediary). Your worker should include it with any other employment income on their Self Assessment tax return.
If your worker receives a salary from you, you’ll need to give them a P60 after the end of the tax year. The pay, tax and National Insurance contributions detailed on the P60 should include the deemed employment payment as well as tax and National Insurance contributions paid on it. Your worker should enter the total P60 pay, tax and National Insurance contributions figures on the employment page of their Self Assessment tax return.
Work out VAT and Corporation Tax
When you work out Corporation Tax liability, deduct the amount of the deemed employment payment and Class 1 employer’s National Insurance contributions due on it. This deduction is only allowed when you work out the taxable profits for the accounting period in which the deemed employment payment is treated as paid.
The fees you charge for providing services will be subject to VAT, even if the engagement is within the off-payroll working rules. This is because it’s still you that is contracting to provide service to a client, and as such the supply remains within the VAT regime. Read more about how VAT works.
Last updated 9 March 2023 + show all updates
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Details of the off-payroll working rules prior to April 2021 have been included where appropriate
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First published.