Guidance

Off-payroll working for agencies

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.

Overview

The off-payroll working rules:

  • apply if a worker provides their services through an intermediary, but would be classed as an employee if they were contracted directly
  • make sure that workers providing services through an intermediary pay broadly the same tax and National Insurance contributions as an employe

An intermediary will normally be a worker’s personal service company, but could also be a partnership, a managed service company or an individual.

If you supply a worker who provides their services through an intermediary to a client in the public sector, the client must decide if the rules apply. They must pass the determination to the person or organisation they contract with.

If you supply a worker to a client in the private sector, the worker’s intermediary must decide if the rules apply and pay the tax and National Insurance due. The private sector includes third sector organisations, such as some charities.

From 6 April 2020 agencies will be affected by changes to how the rules are applied.

What the changes mean

The changes affect you if you’re an agency and you supply workers to:

  • any public sector client
  • medium and large-sized private sector clients
  • another agency who supplies a worker for public sector clients or medium and large-sized private sector clients

From 6 April 2020, medium and large-sized private sector clients receiving services from a worker will be 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 conditions about size only apply to clients. If you are a small-sized fee-payer you will still be responsible for applying off-payroll working rules.

All public sector clients will remain responsible for deciding if the rules apply. They will become responsible for telling the worker and the agency or other labour provider they contract with of their determination. They must also give the reasons for making the determination.

The changes mean you as an agency could become liable for paying tax and National Insurance contributions if any of the following apply:

Check if you’re the fee-payer

Some agencies will also be fee-payers. This is usually the person or organisation paying the worker’s intermediary. It is the fee-payer’s responsibility to deduct tax and National Insurance contributions and pay them to HMRC.

If you do not receive the determination, you should pass on the payment without deducting tax and National Insurance contributions. Before you do you can ask the client or agency immediately above you in the labour supply chain why you haven’t received a status determination.

Your responsibilities if you’re not the fee-payer

Pass on any determinations that you receive to the next party in the supply chain.

You as the agency will become responsible for paying the worker’s tax and National Insurance contributions if both:

  • you receive a worker’s employment status determination from the client above you in the supply chain
  • you do not pass this determination on to the next party below you in the chain

If you’re the first agency in the supply chain

If you’re the first agency in the 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 any outstanding tax or National Insurance contributions from parties below you in the chain, for example, the fee-payer.

Published 22 August 2019