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View the related Tax Guidance about IR35

Small clients ― who is affected by off payroll working (IR35) for large clients?

Small clients ― who is affected by off payroll working (IR35) for large clients?For the private sector, rules apply from 6 April 2021 in relation to the engagement of off payroll workers ― see the Off payroll working (IR35) ― public sector, large and medium clients ― overview guidance note. Legislation to define what is ‘small’ applies from April 2021. Any private entity that is not small will be caught by the off payroll working rules. HMRC guidance is available on GOV.UK. See Simon’s Taxes E4.1041A. HMRC guidance is at ESM10006–ESM10009.Rules differ by type of legal entityCompanies, LLPs, unregistered companies and overseas companiesFor the purposes of this legislation, unregistered companies and overseas companies are as defined in CA 2006.Single entityWhere the entity is a single entity (ie not part of a group, joint venture, or similar), engaging off payroll workers:•where it has no accounts filing date before the start of the tax

Risk assessment for off-payroll working (IR35) ― for small clients

Risk assessment for off-payroll working (IR35) ― for small clientsThis guidance note considers some of those risks to the intermediary of the off-payroll working for small clients rules (also known as the intermediary rules or IR35) see the Off-payroll working (IR35) for small clients - overview for an introduction to this topic.For those contracts which are within the off-payroll working for small clients rules, the intermediary is required to assess whether the contract would be one of employment or self-employment when looking at the relationship between the individual carrying out services and the client if that relationship was notionally direct, ie without the intermediary in place. Whether a person is an employee or self-employed is known as employment status.This guidance note addresses the practical approaches an intermediary may take to manage the risk of the off-payroll working for small clients rules.Self-assessment for off-payroll working for small clientsHMRC’s basic position is that intermediaries should be able to self-assess whether or not the off-payroll working for small clients rules (also known as the intermediary rules or IR35) apply. HMRC also holds the view that there is ‘significant non-compliance’ with the rules (see the 2015 IR35 Discussion document, page 4), although there are no reliable statistics in this area. Whatever the level of non-compliance with the regime, it is not at all clear to what extent it is attributable to ignorance of the rules, an inability to navigate those rules, businesses and advisers coming to a different conclusion to HMRC on the

Agency workers

Agency workersA worker who offers his services to a number of different clients may choose to sign up to an agency who will seek work on his behalf. The work secured for the individual by the agency may only be hours in duration or it may go on for months. Whatever the duration, the worker has a contract with the agency rather than with the individual clients. The agency generally bills the clients for the worker’s services rather than the client paying the worker direct. The agency then pays the worker an amount as agreed in the contract between them. The agency is responsible for assigning jobs on hand to the various workers it has under contract. Agencies are particularly common in the nursing, domestic care and temporary work sectors.Although the employment status tests (see the Employment status tests guidance note) may suggest that this sort of arrangement is not an employment relationship, it may come within particular tax provisions in ITEPA 2003, ss 44 and 688 (the agency provisions) and NIC provisions in SI 1978/1689, Sch 1, Part I (the categorisation regulations). Those provisions can apply to treat the agency worker’s income as employment income and, in most cases, make the agency responsible for the operation of PAYE on that income and make the agency liable to secondary Class 1 NIC in respect of the worker’s income.HMRC guidance is provided at ESM2001 onwards.When do the provisions apply?The agency rules apply if a worker personally provides services to a

Off payroll working (IR35) for small clients ― calculating the deemed employment payment

Off payroll working (IR35) for small clients ― calculating the deemed employment paymentIntroduction - the deemed employment paymentThis guidance note covers the position where a contractor is working through an intermediary within the off-payroll working for small clients rules - see the Off-payroll working (IR35) ― small clients ― overview guidance note. Where these rules apply, there is a requirement for the intermediary to:•calculate the deemed employment payment (the term used for tax which is used throughout, although it is called the ‘attributable earnings’ in the NIC legislation)•calculate and pay over the tax and NIC due to HMRCThe diagram below shows the interaction of the deemed employment calculation with an intermediary structure:Tax and NIC on the deemed employment payment / attributable earningsSeparate legislation is in place for tax and NIC ― see the Off-payroll working (IR35) for small clients ― particular NIC points and tax planning guidance note for more on all of the points below.For tax, the calculation is known as the ‘deemed employment payment’ calculation, for NIC it is the ‘attributable earnings’ calculation. In most cases the calculations are identical. This note refers to both as the deemed employment payment throughout unless anything specifically only applies to NIC and not tax. Certain types of work are categorised by NIC regulations as being ‘employed earners’ and so where an individual is carrying out these types of work, NIC is applied under the off-payroll working for small clients rules even where the rules don’t apply for tax.

Doctors and dentists ― self-employed income

Doctors and dentists ― self-employed incomeNHS incomeMedical and dental practitioners working for the NHS may be either employed or self-employed. The employment status of doctors and dentists is reviewed in the Doctors and dentists ― income guidance note. General medical practitioners and general dentist practitioners who are working for the NHS are generally self-employed and receive income from the NHS under contracts for services where the value of the earnings are derived from a formula which takes into account the number of patients and performance of the practice. The performance element includes allowances for elements relating to specific items under the Quality and Outcomes Framework (QOF).Further to this, there are specific allowances relating to specific costs such as locums employed to cover maternity, paternity or sickness leave, dispensing, flexible care scheme, and so on. There are also supervision fees relating to the cost of training assistants, inducement payments for acting in certain areas and reimbursement of rents and rates for practice accommodation. These allowances are included within the practice receipts taxable as profits from a profession or vocation. For example, where an element of the practice’s fees are calculated with respect to rent, this is still treated as profits of a profession. There is an advantage to be gained by treating earnings as rent, avoiding NIC, but reimbursement of premises costs do not constitute rental income. See below for more details.Private incomeWhere a practitioner has private patients, the income will also be attributed to their profits from a profession.

IR35 ― overview

IR35 ― overviewWhat is IR35?What is referred to as IR35 has changed significantly since it was first announced in 1999, particularly since 2017. It is therefore useful to look back to understand the term, where it came from, and what it means for current taxpayers and advisers.In the March 1999 Budget, anti-avoidance measures to target the avoidance of tax and NIC by individuals providing their services through an intermediary such as a personal service company or partnership were announced. The proposals were issued in Revenue Press Release IR35 and this led to the rules becoming widely known as ‘IR35’.The first legislation in this area broadly addressed the issue of those providing their services through an intermediary that resulted in those individuals extracting profit from the intermediary as a dividend and, as such, paying lower tax and no employer or employee NIC as compared with an employee working directly for their client. As the rules have developed, they now cover a wider variety of arrangements and the responsibilities and administration around these rules are far more complex. A Commons research briefing, personal service companies & IR35 was published by the House of Commons Library in July 2020 setting out a detailed history of these rules and their development over time.The off-payroll rules (IR35) are conceptually simple. It asks only one question: ‘Would the worker have been an employee (or office-holder) of the client if they were engaged directly by the client?’ This question is known as employment status. Employment status

Directors

DirectorsMost of the rules concerning tax on employment income and National Insurance apply to company directors in exactly the same way as they do to general employees. Unless otherwise stated, when the guidance notes in this module talk about 'employees' this includes both directors and employees.The rules on the national minimum wage (NMW) / national living wage (NLW) do not apply to company directors unless they provide work or services to the company under a contract of employment (see the National minimum wage ― overview guidance note).This guidance note is concerned with the instances where special tax or NIC rules apply to directors.Income taxWho counts as a director?Although in many cases it is obvious that an individual is a director, eg because their job title says that they are, there is a definition in the legislation on employment benefits that includes a range of people who may not normally be described as directors. It specifically includes anyone who manages the affairs of a company alone, is a member of a board of directors or similar body which does so, or is a member of a company whose affairs are managed by its members. If the directors (as described above) usually act under the direction or instruction of another individual in managing the affairs of the company, that other individual also comes within the definition of director for the purposes of the benefits code. Such an individual is sometimes known as a 'shadow director' but for the purposes of the

CIS ― subcontractors

CIS ― subcontractorsThe construction industry scheme (CIS) was devised to limit the amount of tax lost as a result of under-declarations or failures to notify chargeability by subcontractors, many of whom came to work in the UK for relatively short periods without paying any tax.The scheme operates to withhold tax at source at the point when payments are made to subcontractors in respect of work which is defined as ‘construction operations’, thereby reducing the risk of a subsequent default by the subcontractor. Although, if the subcontractor can prove they have complied with their tax obligations and meet other tests (eg on prescribed level of turnover), they are able to receive payments gross. The scheme has undergone regular changes since its inception and the current regime came into effect on 6 April 2007.For a summary of the CIS, see the CIS ― overview guidance note.Who is a subcontractor?A party to a contract relating to construction operations is a subcontractor if they are under a duty to the contractor to carry out the operations, or to furnish their own labour or the labour of others in carrying out the operations. A contract relating to construction is a broad term; it can include contracts which cover a range of mixed activities of which construction operations form only a component part. Where subcontractors provide labour other than just their own, they may themselves also be contractors. For more on contractors and their responsibilities, see the CIS ― contractors guidance note.For the CIS to

Implications for the end client

Implications for the end clientThis guidance note considers the position of an end client where either the standard off-payroll (IR35) rules apply (see the Off-payroll working (IR35) for small clients - overview guidance note), a public sector body (see the Off payroll working (IR35) ― public sector, large and medium clients ― overview guidance note) or a large or medium-sized private sector body from 6 April 2021 (see the Off payroll working (IR35) ― public sector, large and medium clients ― overview guidance note). In general, this means that the end client is engaging the personal services of an individual.There are a number of advantages to the end client in engaging the services of an individual via a company rather than as an employee ie an indirect or third party relationship, whether they engage directly with an intermediary such as a PSC, or whether it is through an agency or other third party. If there is an employment relationship, the end client has to operate PAYE on the amounts paid to the employee, and has to pay NIC (for current rate, see the Overview of NIC Classes, rates and thresholds guidance note), the apprenticeship levy (if

Employment allowance

Employment allowanceWhat is the employment allowance?The employment allowance is available to most small employers, reducing their liability to secondary Class 1 national insurance contributions (NIC). It is a flat rate reduction in the overall amount that most employers have to pay in secondary NIC in respect of their employees. In its Autumn Budget 2024, the Government confirmed two significant changes to the employment allowance, from 6 April 2025. Firstly, the allowance itself was increased substantially, to £10,500 from £5,000 per year. Also, the restriction limiting the allowance to those with an employer’s NIC liability under £100,000 per year is removed, meaning that the allowance will no longer be limited to ‘small’ employers from 2025/26. Other qualification factors (see below) will however remain unchanged. The extra allowance will at least offset, partially, the general employer NIC increases which apply from 6 April 2025, as set out in the Overview of NIC Classes, rates and thresholds guidance note. See National Insurance Contributions (Secondary Class 1 Contributions) Bill, cl 3 and Autumn Budget 2024 ― Overview of tax legislation and rates (OOTLAR), para 2.3.As set out in SI 2020/218, it is available on the following basis:•if, up to 2024/25, the previous tax year’s total employers’ (ie secondary) NIC liability is less than £100,000 (though this limit is removed from 6 April 2025)•claims must be submitted every year and are not automatically rolled over from one year to the nextEmployer Bulletin 80When an employee’s pay is more than the secondary threshold