Find out about the off-payroll working rules (IR35) for agencies, when the changes to these rules apply and how the changes will affect you.
The off-payroll working rules can apply if a worker provides their services through an intermediary (usually a limited company). A worker is sometimes known as a contractor.
The rules make sure that workers, who would be classed as an employee if they were contracted directly, pay broadly the same Income Tax and National Insurance contributions as employees.
An intermediary will usually be the worker’s own personal service company (usually a limited company), but could also be any of the following:
- a partnership
- a managed service company
- an individual
If you supply a worker who provides their services through an intermediary to a client in the public sector or a medium or large sized organisation outside the public sector you will have responsibilities under the off-payroll working rules.
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.
An agency is the employment or recruitment agency who supplies contractors to a client. There can be several agencies in a labour supply chain. The agency may also be responsible for paying a contractor’s intermediary.
You will have responsibilities if you’re an agency and you supply workers to:
- any public sector client
- medium and large-sized clients outside the public sector
- another agency who supplies a worker for public sector clients or medium and large-sized clients outside the public sector
Public sector organisations and medium and large-sized clients outside the public sector receiving services from a worker are responsible for:
- making an employment status determination to decide if the rules apply
- telling the worker, and agency or other labour provider they contract with of their determination, with reasons for making the determination
The responsibility for deducting Income Tax and employee National Insurance contributions, and paying employer National Insurance contributions, is yours until you tell the worker and the person or organisation you contract with of your determination and the reasons for it.
You as an agency could become the deemed employer and liable for paying Income Tax and National Insurance contributions if any of the following apply:
- you’re the fee-payer
- you’re not the fee-payer but do not pass on the client’s determination to the person or organisation you contract with
- you’re the first agency in the labour supply chain
The labour supply chain is the chain of separate contracts between each party, from the client to the worker’s intermediary.
Check if you are the deemed employer and responsible for deducting Income Tax and National Insurance contributions
Some agencies will also be deemed employers. This is the person or organisation paying the worker’s intermediary. It is usually the deemed employer’s responsibility to deduct Income Tax and employee National Insurance contributions and pay them to HMRC, as well as paying employer National Insurance contributions and Apprenticeship Levy, if applicable.
If you do not receive the determination, you should pass on the payment without deducting Income Tax and National Insurance contributions. You can also ask the client or agency immediately above you in the labour supply chain why you did not receive the determination.
You may not receive the determination because the client is a small-sized client outside the public sector, as these do not have to consider if the rules apply. If you are the agency the client contracts with, you can ask the client to confirm its size.
The conditions about size only apply to clients. If you are a small-sized agency or fee-payer you will still be responsible for applying off-payroll working rules.
Read more about your responsibilities if you’re the party responsible for deducting Income Tax and employee National insurance contributions, and paying employer National Insurance contributions and Apprenticeship Levy.
Your responsibilities if you are not the deemed employer
You must pass on any determinations that you receive to the next party in the labour supply chain.
You as an agency will become responsible for paying the worker’s Income Tax and National Insurance contributions and Employer National Insurance contributions and Apprenticeship Levy if:
- you receive a worker’s employment status determination from the client above you in the labour supply chain
- you do not pass this determination on to the next party below you in the chain
If you are the first agency in the labour supply chain
You must carefully consider who you enter into contractual arrangements with to provide labour.
The liability may transfer back to you if HMRC cannot collect outstanding Income Tax or National Insurance contributions from parties below you in the chain, for example, the fee-payer.
You may be offered schemes that wrongly claim to get around the off-payroll working rules.
Find out how to recognise tax avoidance schemes.