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

Produced by Tolley

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

  • Off payroll working (IR35) ― calculating the deemed employment payment
  • When the calculation applies
  • The steps
  • Step 1
  • Step 2
  • Step 3
  • Step 4
  • Step 5
  • Step 6
  • Step 7
  • More...

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

Many people supply their services to clients, not directly as a self-employed person, but via a company. The tax and NIC advantages of this way of working are significant. See the Personal service companies ― overview guidance note.

Since April 2000, anti-avoidance legislation, known as IR35, off payroll working or the intermediaries legislation, catches individuals who would be employees or office holders of their clients if they were engaged directly rather than using a PSC. See the Establishing employment status guidance note.

The intention of the off payroll legislation (IR35) is to collect roughly the same tax and NIC as would have been paid if an individual was employed directly by their client. The obligation to calculate and pay the tax and NIC rests with the PSC and not the client if it is within these standard rules. There are other rules that apply and depend on who the client is. See the Off payroll working (IR35) in the public sector ― overview and Off payroll working (IR35) in the private sector ― overview guidance notes.

The diagram below shows the interaction of the IR35 calculation with a PSC structure:

Separate legislation is in place for tax and NIC. 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, but not invariably. Individuals in certain types of work are categorised by NIC regulations as being ‘employed earners’ and may be subject to special rules. The list of categorised workers includes certain cleaners, agency workers, certain people working for their spouse or civil partner and certain ministers of religion. Special NIC rules also apply to cross-border workers ― see the Off payroll working (IR35) ― particular NIC points and planning guidance note.

From 6 April 2017 onwards, the IR35 rules do not apply where the client is a public sector body ― see the

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