Calculating and accounting for the deemed direct payment for off payroll working (IR35)

Produced by Tolley

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Calculating and accounting for the deemed direct payment for off payroll working (IR35)
  • Fee payer responsibilities
  • How to calculate the DDP
  • Operating payroll
  • Intermediary responsibilities
  • Cashflow
  • Payroll and employer responsibilities
  • Statutory payment calculations
  • Corporation tax calculations
  • VAT
  • More...

Calculating and accounting for the deemed direct payment for off payroll working (IR35)

Where the off payroll working rules apply (see the Off payroll working (IR35) in the public sector ― overview and Off payroll working (IR35) in the private sector ― overview guidance notes), the fee payer is required to calculate and settle the PAYE on the deemed direct payment (DDP).

The fee payer is responsible for the deduction of tax and NIC from payment, and will account for these amounts to HMRC via Real Time Information (RTI) in the same way as for employees. Unlike the situation with employees, however, the actual payment is made to the intermediary and not directly to the individual. However, the PAYE paid will be based on the PAYE information for the individual. The fee payer also pays employer’s NIC on top of the DDP as well as the apprenticeship levy where relevant, as it is treated as an employer for PAYE purposes.

There are two sets of HMRC guidance currently available. The first set, starting at ESM9000, applies from 6 April 2017. When the rules changed on 6 April 2021, applying to both the public sector and large and medium private sector end clients, the guidance at ESM10000 onwards, which are currently in draft, will apply. Links to both sets of guidance are included in this note.

The remainder of this guidance note assumes that the contract referred to is within the off payroll working rules.

Fee payer responsibilities

When the fee payer receives the employment status determination from the end client, or passed down the supply chain, the fee payer is required to calculate the DDP, account for PAYE on the DDP and report to HMRC through RTI. For public sector end clients, these rules apply to any payments made to the worker’s intermediary on or after 6 April 2017 regardless of when the work was carried out. For large and medium sized clients in the private sector, these rules

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