Off Payroll Workers 

From 6 April 2021, the off-payrolling rules, commonly known as IR35, were extended to medium and large private sector businesses who engage workers operating through an intermediary. The rules are relevant when a worker is engaged via an intermediary such as their own Personal Service Company (PSC), a partnership, an LLP, a managed service company or even via another individual.

The rules were introduced to tackle a perceived advantage for those working as though they were an employee but via an intermediary, but who were not paying tax or National Insurance Contributions (NIC) in the same way as a direct employee would have to.

The end client in a labour supply chain has the obligation to assess the ‘workers’ employment status and determine whether the IR35 rules apply. If the end client determines that the nature of the relationship / contract between themselves and the worker is characteristic of an employment, then the off-payrolling rules will apply. There are many different factors to take in-to account when determining whether a contract is ‘caught’ by IR35 and it is not always easy to make a clear determination.

When a contract is deemed to be within IR35, the payer has the responsibility for making the appropriate deductions from the payments made to the intermediary. The fee payer is the organisation which makes the payment to the intermediary (usually a PSC).

What are the obligations for employers?

When a contract is caught by IR35, in many cases the fee payer will also be the ‘deemed employer’. There are a number of obligations which must be met by a deemed employer but the responsibilities differ from those of a direct employer.

When IR35 applies, a deemed employer must:

• check the status determination statement to ensure they agree the position

• calculate the deemed direct payment:
  • value of the payment to the intermediary less VAT, cost of materials
  • deduct any expenses that would be allowable if worker was a direct employee

• calculate and deduct PAYE and NIC from direct payments made to intermediaries
  • use a new starter checklist – normally a BR code is applied

• report to HMRC via RTI the PAYE and NIC withheld
  • can use same PAYE reference

• pay employer NIC to HMRC
  • Employment Allowance cannot be used to offset against this liability

• apply the Apprenticeship Levy and make payment if necessary.

However, a deemed employer is just that, and the scope of their responsibilities is reduced compared with an actual employer.

A deemed employer does NOT need to consider student loan deductions, statutory payments such as Statutory Maternity/Paternity pay, holiday pay or any workplace pension/ Auto Enrolment deductions etc. A deemed employee does not have the same rights as a direct employee. It is important to distinguish between the two very different scopes of responsibility.

How Crowe can help

The Employment Tax team at Crowe have significant experience in assisting clients with reviewing their engagements with off-payroll workers to identify potentials risks.

If you would like to discuss this further please contact your usual Crowe contact.