Guidance

Apply the off-payroll working rules (IR35) in the private sector

How to apply the off-payroll working rules as an intermediary for engagements in the private sector.

Overview

The off-payroll working rules are in place to make sure that you pay broadly the same tax and National Insurance contributions (NICs) as an employee if you:

  • provide your services to a client through your own intermediary (most commonly a limited company that you control)
  • would have been an employee if you were providing your services directly to a client

Where the client is in the private sector and the off-payroll working rules apply, your intermediary will need to calculate a ‘deemed employment payment’. This is the amount deemed to be the income of the worker, once deductions and employer’s NICs have been removed.

Your intermediary will need to:

  • pay the employer’s NICs to HM Revenue and Customs (HMRC)
  • pay any tax and other NICs due, at the end of the tax year
  • take into account the deemed employment payment when paying Corporation Tax, paying dividends to shareholders or operating the Construction Industry Scheme (CIS) regime

You’ll need to report information about these engagements to HMRC on your Self Assessment tax return, and pay any other Income Tax and NICs that are due.

Check if you need to calculate the deemed employment payment

You need to work out how much your intermediary:

  • received in the tax year from off-payroll working engagements
  • paid to you as employment income

You don’t need to calculate the deemed employment payment if the amount your intermediary paid you (as employment income) was equal to, or more than, the amount it received from off-payroll working engagements in the tax year.

Calculate the deemed employment payment

To calculate the deemed employment payment, you’ll need details of:

  • the payments received by the intermediary
  • payments made to the worker (like salary, benefits in kind)
  • pension contributions made for the worker
  • expenses met by the intermediary

You can use the IR35 - Deemed Employment Payment Calculator (Excel file) to calculate the deemed employment payment.

You can find more information on what costs to include and deduct in the guide on how to calculate the deemed employment payment.

If your intermediary supplies the services of more than one worker to a client under the same contract, you’ll need to calculate the deemed employment payment separately for each worker.

If a client makes a single payment to your intermediary for 2 or more workers, the income received must be split proportionally.

Understand the results of the calculator

If the deemed employment payment is a:

  • negative number (or 0) - you don’t need to pay any further Income Tax or NICs, but you should keep evidence of your calculation and supporting information
  • positive number - you must pay Income Tax and Class 1 NICs on this amount.

Your intermediary is responsible for paying the tax and the employer and employee Class 1 NICs due on the deemed employment payment.

You can use your payroll software or Basic PAYE tools to work out how much tax and NICs need to be paid on the deemed employment payment. You can also use the Employer further guide to PAYE and NICs.

Report payment

If your intermediary makes salary payments to the worker during the year, report them on a Full Payment Submission (FPS) on or before the time of payment. If you don’t make salary payments then return an Employer Payment Summary (EPS).

The deemed employment payment should be reported on an FPS on or before 5 April each year.

Your intermediary should include the deemed employment payment on a P60 form, which your intermediary must issue to employees by 31 May after the end of the tax year.

If you can’t accurately calculate the deemed employment payment by the end of the tax year, you’ll have until the following 31 January to submit final figures and pay any balance of tax and NICs due, provided:

  • you report a provisional calculation of the deemed employment payment on an FPS on or before 5 April
  • make the appropriate payment of tax and NICs to HMRC
  • you report final figures on an Earlier Year Update (EYU) submitted on or before the 31 January following the end of the tax year
  • pay a balancing payment of any additional tax and NICs 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’s to be withdrawn.

Self Assessment tax return

The deemed employment payment is treated as your employment income from your company or partnership. You should include it with any other employment income on your Self Assessment tax return.

If you receive a salary from your intermediary, it will need to give you a P60 after the end of the tax year. The pay, tax and NICs details on the P60 should include the deemed employment payment as well as tax and NICs paid on it. Enter the total P60 pay, tax and NICs figures on the employment page of your Self Assessment tax return.

If only a provisional amount of tax and NICs has been paid when you get your P60, your intermediary should give you a revised P60 with the correct deemed employment payment by the 31 January, after the end of the tax year. Use the figures from the revised P60 on your Self Assessment tax return.

Calculate VAT and Corporation Tax

When calculating Corporation Tax liability, your intermediary can deduct the amount of the deemed employment payment and any Class 1 employer’s NICs due on it. This deduction is only allowed when you calculate the taxable profits for the accounting period in which the deemed employment payment is treated as paid.

The fees charged by your intermediary for providing services will still be subject to VAT, even if the engagement is within the off-payroll working rules. This is because it’s still the intermediary that’s contracting to provide services to its clients and as such the supply remains within the VAT regime.

Published 14 June 2014
Last updated 7 July 2017 + show all updates
  1. Removed guidance on the additions and deductions needed to calculate the deemed employment payment as these are covered in another guide (which is linked to).
  2. Rates, allowances and duties have been updated for the tax year 2017 to 2018.
  3. Rates, allowances and duties have been updated for the tax year 2016 to 2017.
  4. Rates, allowances and duties have been updated for the tax year 2015 to 2016.
  5. First published.