Find out if off-payroll working rules apply to a worker providing services through an intermediary, and when you need to check.
A worker is involved in off-payroll working when they work for a client through their own intermediary, often a personal service company (PSC), but would be an employee if they were providing their services directly.
As off-payroll workers are paid through their own intermediary, they pay Income Tax and National Insurance contributions (NICs) in a different way to an employee.
The off-payroll working rules are in place to make sure that where an individual would’ve been an employee if they were providing their services directly, they pay broadly the same tax and NICs as an employee.
Who needs to consider the off-payroll working rules
You’ll need to consider the off-payroll working rules if you:
- provide your services to a client through your own intermediary
- hire people who provide their services through an intermediary to public sector clients
The intermediary can be:
- a worker’s own limited company - known as a personal service company (PSC)
- a partnership
- another individual
There are different roles and responsibilities for applying off-payroll working rules depending on whether a worker provides their services in the public or private sectors.
Public authorities are responsible for deciding if off-payroll working rules apply in the public sector.
The person providing services through their own intermediary will need to provide information to the public authority to help them make their decision.
If the rules apply, the public authority, agency or other third party who is responsible for paying the worker’s intermediary must deduct tax and Class 1 NICs and pay and report them to HM Revenue and Customs (HMRC).
The person providing services through their own intermediary is responsible for deciding if the relevant rules apply for work in the private sector.
They will also need to pay the tax and National Insurance due if the rules apply.
Find out if the rules apply
You can use the check employment status for tax service to help you find out if the off-payroll working rules apply.
How the off-payroll working rules work
When you’re deciding if the off-payroll working rules apply to a contract or engagement you must work out the employment status of the person providing their services.
The off-payroll working rules will apply if the person providing their services:
The rules may also apply if you’re working through an intermediary and you:
- or your intermediary, or client are abroad
- work in the construction industry
- work with your partner or spouse
- are working, through an intermediary, for a charitable organisation
You need to assess each engagement by considering what the relationship between the client and the worker would be if there wasn’t an intermediary involved.
You have to use information about the working practices for the engagement to decide what the employment status is, and not rely on any label, description, or job title.
Do this for each individual contract or engagement, and make sure you consider them again when they are renewed or change.
If you work in the construction industry
Both the off-payroll working rules and the Construction Industry Scheme (CIS) can apply if you’re a subcontractor working in the construction industry through a limited company or partnership.
You’ll need to apply special rules to stop tax and NICs being paid twice on the same earnings within the CIS scheme and off-payroll working rules.
If the worker, intermediary, or client is abroad
The off-payroll working rules still need to be considered if the worker, intermediary or client is abroad.
The off-payroll working rules can still apply if the intermediary is not in the UK but the worker is living in the UK and does work for a client in the UK.
If the client is based abroad and the work is carried out in the UK, you’ll need to know the tax residence status of the worker and the client.
If you’re a foreign national who provides services through an intermediary based in the UK, you’ll need to check if the off-payroll working rules apply.
If an offshore intermediary fails to apply the off-payroll working rules for work in the public sector, liability for any tax and NICS due can be transferred to the:
- onshore agency
- end client
Action to recover an employer’s NICs not paid by an offshore intermediary could also include action against any of its assets located in the UK. HMRC has powers to obtain details of payments to offshore intermediaries from the records of clients and agencies.
When off-payroll working rules don’t apply
The off-payroll working rules won’t apply if the agency, umbrella company or similar third party that supplies the worker directly employs them and deducts Income Tax and NICs.
If the worker is engaged by the agency, umbrella company or similar third party through the worker’s intermediary then the off-payroll working rules may apply.
These workers are covered by the guidance for employment intermediaries.
Foreign entertainers within the foreign entertainer tax regime are also not affected by off-payroll working rules.
Penalties for not following off-payroll working rules
You can be charged interest and penalties on any Income Tax or NICs owed because you’ve not applied the off-payroll working rules. The penalties can be more severe if the rules were deliberately ignored.
If off-payroll working rules applied to previous contracts but weren’t followed, you should tell HMRC immediately. If you make a voluntary disclosure it may reduce any penalties you have to pay.
Further help with the off-payroll working rules
You don’t need to reveal your identity to use the helpline and any information you do give will not be shared with HMRC compliance teams
The Contract Review Service for work with private sector clients
You can use HMRC’s Contract Review Service if you’ve used the check employment status for tax service but still aren’t sure if the off-payroll rules apply. You can use this service to check engagements with private sector clients, but not public authorities.
The Contract Review Service can review a written contract for you, and if they decide that the rules don’t apply to your contract, they’ll give you a confirmation letter with a unique reference number that will be valid for 3 years.
If, later on, HMRC open an employment status review, you can give them this number and they’ll suspend the review while they consider all the information. HMRC will close the review if:
- the contract reviewed is typical of your engagement terms and conditions
- the information provided is accurate
- evidence shows that the circumstances haven’t changed
Contact the IR35 Helpline to use the Contract Review Service.