Public sector off-payroll working for intermediaries

Find out about the off-payroll working rules (IR35) if you're an intermediary and your worker provides services to a public sector client.


The off-payroll working rules:

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

An intermediary is a party who makes arrangements for, or pays, an individual to work for a third party. The off-payroll working rules apply to a worker’s intermediary.

The 3 different types of intermediary that workers can provide their services through are:

  • a limited company, usually known as a personal service company (PSC)
  • a partnership
  • an individual through a non-corporate relationship – this is sometimes known as an ‘unincorporated body’

A PSC is a type of intermediary where the worker has a ‘material interest’ in a company. This usually means the worker is either:

  • the director of the company
  • able to control more than 5% of the ordinary share capital of the company, directly or indirectly

Who decides if the rules apply

If you provide services through an intermediary to a public sector client, the client must decide if the off-payroll working rules apply.

If the rules apply, Income Tax and Class 1 National Insurance contributions will be deducted from the payments received for your worker’s services.

What you need to do

You’ll need to:

  • provide the fee-payer with the information they need in order to deduct tax and National Insurance contributions from the payment they make
  • report to HMRC on your worker’s, and your business’s tax affairs

You’ll need to account for and pay tax and National Insurance differently if you provide services for private sector clients.

Payments received from the fee-payer

In most cases the party paying a worker’s intermediary will be the fee-payer.

The fee-payer is the lowest party in the labour supply chain. They pay the worker’s intermediary and usually deduct tax and National Insurance contributions and pay HMRC.

The fee-payer will pay VAT, if you’re VAT registered, and then deduct Income Tax and employee National Insurance contributions from your fee. This means the payment you receive will have had tax and National Insurance deducted.

For example:

  1. You invoice the fee-payer for £7,200 for the worker’s services provided (£6,000 fees and £1,200 VAT).
  2. From the worker’s fees of £6,000, the fee-payer deducts £1,613 (£1,200 tax at 20% basic rate and £413 employee National Insurance contributions) which it pays to HMRC.
  3. You receive a payment of £4,387 for the services plus £1,200 VAT.
  4. The fee-payer also pays employer National Insurance contributions.

If the fee-payer is outside the UK, different rules apply.

Pay a worker through their intermediary

If the off-payroll working rules apply your income for your worker’s services will have had tax and National Insurance contributions deducted from them. This means that when you pay the worker they do not need to pay tax and National Insurance contributions again on those fees.

You can do this by either paying it as:

  • a salary through your payroll but don’t deduct tax or National Insurance contributions
  • dividends - these do not need to be recorded on your worker’s Self Assessment

As the amounts have already been treated as employment income doing it this way will avoid any double payment of tax or National Insurance contributions.

Report any non-taxable payments you make to the worker using the Full Payment Submission. Your payroll software will produce this.

Corporation Tax calculations

When you calculate your company’s taxable profit, you should deduct the VAT exclusive amount of the invoice. This is the amount from which Income Tax and National Insurance contributions were deducted at source.

Your company accounts should show this deduction to make sure the amount is not taxed twice.


If you’re VAT registered, you should continue to include VAT in your invoices. You’ll need to file your VAT returns and pay HMRC any VAT payments that are due.

Changes from April 2021

How the rules are applied will change from April 2021. You will need to find out what the changes are and start making preparations for them now.

The changes to the off-payroll rules were due to come into effect on 6 April 2020. This has now been delayed until April 2021 because of the spread of the coronavirus (COVID-19) pandemic. The delay is to help businesses and individuals deal with the economic impact of COVID-19.

The delay to the introduction of the changes is not a cancellation.

Published 3 February 2017
Last updated 20 March 2020 + show all updates
  1. This page has been updated to reflect the delay to the changes to the off-payroll working rules until 6 April 2021.

  2. The guidance has been updated to reflect there are changes to how the off-payroll working rules will be applied from 6 April 2020.

  3. Guidance on reporting non-taxable payments in your salary has been updated.

  4. If you use Basic PAYE Tools, you don't need to report non-taxable payments your company made to you.

  5. First published.