Insights -

Off-payroll working rules

As indicated in the article on IR35 in this month’s Corporate Insights bulletin, from 6 April 2021, the regime introduced by the Finance Act 2017 to address the tax treatment of off-payroll workers in the public sector is being extended to workers providing services to medium or large clients in the private sector including via a personal service company (or PSC) and other intermediaries unless the “small business” (or another) exemption applies.  For a group company to be a small company for these purposes, its parent company must also qualify as a small company according to the criteria referred to the article on IR35.

The size of the intermediary is irrelevant so many “small” intermediaries will potentially be caught by the off-payroll working rules (or OPWR) since it is the size of the “end user” client which is the determining factor.

Under the OPWR, where the nature of the engagement would, absent the intermediary, have the characteristics of employment, then, from 6 April 2021, a medium and large end-user client needs to determine the employment status of the worker at the end of the “chain”.

The client then needs to notify the intermediary of that determination by issuing a status determination statement (or SDS).  The SDS must set out both the outcome of the review and the reasons for the outcome.  Clients have a legal obligation to take reasonable care when making such determinations.

If there is a chain of intermediaries, each is responsible for providing a copy of the SDS to the entity below it.  Any party that fails to meet this obligation will be treated as the “fee-payer” (that is, the entity responsible as the deemed employer for accounting to HMRC for income tax and NICs) until it meets the obligation.  An entity will not be a fee-payer if it has not been given an SDS by the entity immediately above it in the chain (but, if you suspect that the OPWR are likely to apply, it would be prudent to check with the entity immediately above you in the chain).

The final UK party in the chain with the SDS before the worker (or the worker’s PSC) must, as the fee-payer, operate payroll and therefore make deductions for income tax and employee’s national insurance contributions and pay employer’s national insurance contributions on the fees paid for the services.  A fee-payer that has a contract with a PSC to supply the services of a worker may face a dilemma as to how to absorb or pass on the cost of the employer’s NIC.

From next April, a fee-payer or worker can appeal an SDS at any time but the recipient of the appeal only has 45 days to respond to the appeal (and, if it fails to do so, will be treated as the fee-payer).

In order to operate PAYE for the OPWR, the fee-payer will need certain information about the worker so the obligation to supply this information should be included in the relevant contract.  The accounts system should also be set up so that payments to workers caught by the OPWR are paid net of the relevant deductions.  Where contracts will straddle 6 April 2021, contracts should be reviewed in good time beforehand to check the position and, if the OPWR will apply, to start the necessary processes.

If you have any queries or questions relating to the above please contact Catherine Drew directly or a member of our Corporate and Commercial team either by email at [email protected] or call 01737 854 500. 


Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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