Guidance

Off-payroll working: how intermediaries calculate statutory payments

Published 24 May 2021

A worker may receive some earnings that have been subject to deductions under the off-payroll working rules and some that have not. When establishing statutory payment entitlement all earnings in relevant periods are considered, so both off-payroll working income and non-off-payroll working income should be included in those entitlement considerations.

This guidance page sets out steps to take to calculate a worker’s statutory payment entitlement where the worker’s intermediary has received amounts net of Income Tax and Class 1 primary National Insurance contributions, under the off-payroll working rules. Check the Employment Status Manual (ESM10033A) to understand the principles around when the worker’s entitlement to statutory payments arises.

Background

Before considering off-payroll working income, payroll software will all broadly use similar steps to calculate statutory payment entitlement using payment information already held within the software. This means the first step is for payments subject to Class 1 National Insurance contribution, to be made through the software. This could be payments such as salaries, bonuses or commission.

Payroll software calculates statutory payment entitlement by using the gross earnings subject to Class 1 National Insurance contributions from a relevant period. The relevant period used is dependent upon which statutory payment is being claimed. The software uses the total gross earnings subject to Class 1 National Insurance contributions in the relevant period to calculate average weekly earnings to identify statutory payment entitlement, providing other qualifying conditions are met. If a person has the requisite average weekly earnings, the software will calculate the level of statutory payment to pay to the individual.

As explained in the Employment Status Manual (ESM10033A), when off-payroll working income is paid to a worker’s intermediary, it is already net of Income Tax and Class 1 primary National Insurance contributions. Therefore, no further deductions of Income Tax and National Insurance contributions will be made from off-payroll working related payments made to a worker by their intermediary. As a result, payroll software will not automatically include these payments as earnings in the relevant period for statutory payment purposes. The worker’s entitlement however should include all gross amounts of earnings subject to Class 1 National Insurance contributions paid in the relevant periods.

This guidance page is aimed at highlighting the process to be followed to ensure that consideration is given to the gross amounts, even though only net amounts of off-payroll working income will be processed within the payroll software.

Earnings period for off-payroll working income

The point at which the deemed employer makes the deemed payment to the worker’s intermediary for the worker’s services under the off-payroll working rules does not determine the earnings period for statutory payment entitlement. This is because statutory payment entitlement arises with the worker’s intermediary, not the deemed employer. Equally, the point in time when the worker’s intermediary receives payment for the services provided by the worker does not decide the earnings period. This is a payment to another business, so it cannot determine the earnings period for the worker.

To be entitled to statutory payments, sufficient earnings subject to Class 1 National Insurance contributions must be paid in the relevant period. As the worker’s entitlement to statutory payments arises from their employment with their own intermediary and not with the deemed employer, the earnings period for statutory payment purposes will be determined by when their intermediary makes payments of earnings to them. This is the case even though those payments will be made net of income tax and National Insurance contributions.

Note – Payments not subject to tax or National Insurance contributions will be reported in data item 58A on the Full Payment Submission (FPS) submitted by the worker’s intermediary. This is solely a consequence of the amounts being non-taxable and not subject to National Insurance contributions. The key principle is that for statutory payment entitlement to arise, payments of earnings must be made by the worker’s intermediary, even though these payments will be net of Income Tax and Class 1 primary National Insurance contributions. If a worker chooses to remunerate themselves solely by way of dividends, entitlement to statutory payments will not arise. Check the Employment Status Manual (ESM10033A) for further detail.

Finding out gross income for off-payroll working engagements

In each of the options listed below, the amount of gross earnings subject to Class 1 National Insurance contributions for off-payroll working engagements must be identified to ensure all qualifying earnings are included when determining eligibility. In most cases this amount will be known to the worker as the deductions will be shown on any payslips, remittance notices or other payment documentation received.

If none of these documents were received, or those documents did not contain amounts of deductions already suffered, then the worker will need to seek that information from the deemed employer. The deemed employer’s payroll software will hold this information, so they should be able to provide it.

Once the deductions are known, they can be attributed to the relevant net amounts paid through payroll relating to off-payroll working engagements when considering the processes set out below.

If the worker’s intermediary receives amounts for off-payroll working engagements, but only pays part of that as a net amount to the worker, a just and reasonable apportionment must be made when attributing the tax and Class 1 primary National Insurance contributions paid on that net amount.

For example, Quinn Ltd receives a payment of £1000 relating to an off-payroll working engagement, where Quinn provided his services to a client. This £1000 has already suffered Income Tax of £200 and Class 1 primary National Insurance contributions of £120. Quinn Ltd pays Quinn £500, 50% of the amount received and retains the other £500. When determining what gross amount should be used for the £500 paid to Quinn, a just and reasonable apportionment may be to apportion £100 Income Tax and £60 Class 1 primary National Insurance contributions to it, this being 50% of Income Tax and Class 1 primary National Insurance contributions paid. The resulting gross amount to use in statutory payment calculations would be £660.

The remaining £500 (£660 gross) which has not been taken as earnings cannot be included in the calculations for statutory payments.

Note - If a worker received net amounts from their intermediary that were previously subject to Income tax but not Class 1 National Insurance contributions, these would not be included in statutory payment calculations. This would need to be taken into account if any just and reasonable apportionment was made.

Working out statutory payment entitlement including off-payroll working income

This section explains 3 different ways the gross amount of off-payroll working income can be taken into consideration when calculating statutory payment entitlement. The functionality of the payroll software in use will determine which of these options can be used. Intermediaries will therefore need to check the payroll software they use and follow the option below that works for them.

1: Total gross pay subject to Class 1 National Insurance contributions for the relevant period can be overwritten

To calculate average weekly earnings and identify any entitlement to statutory payments, first the total gross pay for the relevant period must be calculated. Whilst the payroll software will automatically calculate the total gross pay, this will not include the gross amounts of off-payroll working income. This option involves manually calculating what that total gross pay is to include income from engagements both within the off-payroll working rules and outside the rules, and typing it into the payroll software so it can calculate the entitlement. The steps would be:

1. Find out any net payments made by the worker’s intermediary to the worker that relate to off-payroll working engagements within the relevant period and attribute the relevant amount of Income Tax and Class 1 primary National Insurance contributions already paid on those amounts to come to the gross figure as explained previously.

2. Find out the gross income paid in the relevant period by the worker’s intermediary that do not relate to the off-payroll working rules. This could include, amongst others, any salary, wages, bonuses or commission. This information would be within the intermediary’s payroll software.

3. Add the figures from steps 1 and 2 together to get a total amount of gross pay for the relevant period.

4. When entering statutory payment details into the payroll software, overwrite the total gross pay figure for the relevant period within the payroll software.

5. Complete all the other relevant fields the software requires to enable it to calculate statutory payment entitlement (for example, expected date of childbirth when considering Statutory Maternity Pay).

6. The payroll software will now use this new gross pay figure to calculate average weekly earnings, as well as considering other qualifying criteria, to see if the worker is entitled to the statutory payment. If the worker is entitled, the payroll software will calculate how much the worker should be paid.

Note – Some payroll software may only allow the average weekly earnings figure to be overwritten rather than the total gross pay for the relevant period. If this is the case, take the calculated gross earnings for the relevant period and work out the average weekly earnings, check the Statutory Payments Manual (SPM170000) for detail, then overwrite this figure instead.

Example

Even though this example uses Statutory Maternity Pay to demonstrate the principles laid out above, the principles are applicable to any statutory payment type.

Option description	Test data	Expected results
Total gross pay subject to Class 1 National Insurance contributions for the relevant period can be overwritten	Total gross pay subject to Class 1 National Insurance contributions for non-off-payroll working engagements within Statutory Maternity Pay relevant period = £2,000 Total gross pay subject to Class 1 National Insurance contributions for off-payroll working engagements within Statutory Maternity Pay relevant period = £2,000 Total gross pay subject to Class 1 National Insurance contributions manually typed into Statutory Maternity Pay relevant period box = £4,000 (this is £2,000 salary plus £2,000 off-payroll working income)	£4,000 used by software to work out average weekly earnings and statutory payment entitlement
Total gross pay subject to Class 1 National Insurance contributions not overwritten because there are no off-payroll working engagements	Total gross pay subject to Class 1 National Insurance contributions for non-off-payroll working engagements within Statutory Maternity Pay relevant period = £2,000 Total gross pay subject to Class 1 National Insurance contributions for off-payroll working engagements within Statutory Maternity Pay relevant period = £nil No requirement to overwrite total gross pay subject to Class 1 National Insurance contributions for Statutory Maternity Pay relevant period.	£2,000 used by software to work out average weekly earnings and statutory payment entitlement

2: Final statutory payment amount to be paid can be overwritten

This option involves manually determining whether a worker is entitled to statutory payments and, if they are entitled, calculating the amount of any statutory payment that should be paid. It will include determining the total gross pay subject to Class 1 National Insurance contributions for the relevant period and then calculating the entitlement. The software is being told an amount to pay rather than calculating this amount itself based on average weekly earnings. The steps would be:

1. Find out any net payments made by the worker’s intermediary to the worker that relate to off-payroll working engagements within the relevant period and attribute the relevant amount of Income Tax and Class 1 primary National Insurance contributions already paid on those amounts to arrive at the gross figure as explained above.

2. Find out the gross income paid in the relevant period by the worker’s intermediary that do not relate to the off-payroll working rules. This could include, amongst others, any salary, wages, bonuses or commission. This information would be within the intermediary’s payroll software.

3. Add the figures from steps 1 and 2 together to get a total amount of gross pay for the relevant period.

4. Either use Basic PAYE Tools, HMRC’s statutory payment calculators or another statutory payment calculator to work out whether the worker is entitled to statutory payments and, if they are, what the payment should be. Alternatively, work out entitlement manually following HMRC’s published guidance under the relevant statutory payment.

5. When entering statutory payment details into the payroll software, overwrite the statutory payment entitlement figure within the payroll software to tell the software what to pay.

Example

Even though this example uses Statutory Maternity Pay to demonstrate the principles laid out above, the principles are applicable to any statutory payment type.

Option description	Test data	Expected results
Final statutory payment amount can be overwritten	Final statutory payment amount per week derived from auto calculation of average weekly earnings (excluding off-payroll working income) for first 6 weeks = £300 Final statutory payment amount per auto calculation per week for following 33 weeks = £151.97 Final statutory payment amount manually typed into payroll, after it is calculated outside of payroll, for first 6 weeks where off-payroll working engagements have been included = £450 £151.97 is the maximum for the following 33 weeks so not overwritten as already produced by software. If software value was nil, £151.97 manually typed in for following 33 weeks.	£450 used by software as statutory payment entitlement for first 6 weeks. £151.97 used by software as statutory payment entitlement for following 33 weeks.
Final statutory payment amount not overwritten because there are no off-payroll working engagements	Final statutory payment amount per week derived from auto calculation of average weekly earnings for first 6 weeks = £300 Final statutory payment amount per auto calculation per week for following 33 weeks = £151.97 No amounts manually typed into payroll.	£300 used by software as statutory payment entitlement for first 6 weeks. £151.97 used by software as statutory payment entitlement for following 33 weeks.

3: Additional box in payroll software where gross off-payroll working income can be added to non-off-payroll working income for the relevant earnings period

To calculate average weekly earnings and see if entitlement exists for statutory payments, first the total gross pay subject to Class 1 National Insurance contributions for the relevant period must be calculated. This option involves finding out what the gross pay for off-payroll working engagements is and entering this into a separate box specifically for this purpose within the payroll software. The payroll software then adds the gross pay for off-payroll working engagements (entered into that box) to any non-off-payroll working figures picked up automatically by the software to arrive at the total gross pay for the relevant period. The software can then calculate whether the worker is entitled and, if they are, how much to pay. The steps would be:

1. Find out any net payments made by the worker’s intermediary to the worker that relate to off-payroll working engagements within the relevant period and attribute the relevant amount of Income Tax and Class 1 primary National Insurance contributions already paid on those amounts to come to the gross figure as explained above.

2. When entering statutory payment details into the payroll software, type the figure from step 1 into the ‘off-payroll working income’ box within the payroll software.

3. Complete all the other relevant fields the software requires to enable it to calculate statutory payment entitlement.

4. The payroll software will then add the off-payroll working income to any non-off-payroll working income picked up automatically to calculate the average weekly earnings for the relevant period to determine whether the worker is entitled to statutory payments. Then, if they are entitled, calculate how much to pay.

Example

Even though this example uses Statutory Maternity Pay to demonstrate the principles laid out above, the principles are applicable to any statutory payment type.

Option description	Test data	Expected results
Box added to allow additional amounts to be added to total gross pay subject to Class 1 National Insurance contributions for Statutory Maternity Pay relevant period	Total gross pay subject to Class 1 National Insurance contributions for non-off-payroll working engagements within Statutory Maternity Pay relevant period = £2,000 Amount of additional gross pay subject to Class 1 National Insurance contributions for off-payroll working engagements added to new box for Statutory Maternity Pay relevant period = £4,000	£6,000 used by software to work out average weekly earnings and statutory payment entitlement (£2,000 picked up automatically by payroll plus £4,000 additional off-payroll working income added to additional box)
No amounts added to ‘additional off-payroll working income’ box in payroll	Total gross pay subject to Class 1 National Insurance contributions for non-off-payroll working engagements within Statutory Maternity Pay relevant period = £2,000 No amount of additional gross pay subject to Class 1 National Insurance contributions added to new box for Statutory Maternity Pay relevant period	£2,000 used by software to work out average weekly earnings and statutory payment entitlement

Real Time Information (RTI) reporting

The Full Payment Submission (FPS) should be submitted as normal by the worker’s intermediary on or before payday. The FPS will report to HMRC the statutory payments that have been made. As the worker will have taken payments through payroll, even though these were paid net, HMRC will have the information it needs to do business as usual checks for any statutory payments made.

An Employer Payment Summary (EPS) should also be submitted as normal to declare amounts of statutory payments that will be recovered by the worker’s intermediary. If there is not enough PAYE owing to HMRC in a period to offset amounts to be recovered, for example if all income is off-payroll working income and taxed by the deemed employer, a refund can be sought from HMRC to claim recovered amounts or advanced funding can be sought - check the Statutory Payment Manual (SPM180600) for further information.