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The off-payroll working rules apply where a worker provides their services to a medium or large private sector company or to a public sector body through an intermediary, such as a personal service company. To comply with the rules, the end client must undertake a status assessment. If this reveals that the worker would be an employee if they provided their services direct to the end client, rather than through the intermediary, the end client (or the fee payer if different) must deduct tax and National Insurance from payments made to the worker's intermediary and pass them over to HMRC. The worker will receive credit for this against the tax and National Insurance due on payments made by their intermediary to them personally.
Where the end client is a small private sector organisation, the off-payroll working rules do not apply. Instead, the worker's intermediary is responsible for assessing whether the engagement falls within the IR35 rules. This will be the case if the worker would be an employee if they provided their services directly to the end client. Where this applies, the worker's intermediary must calculate the deemed payment under the IR35 rules at the end of the tax year and account for tax and National Insurance on that deemed payment.
HMRC produce a check employment status for tax (CEST) tool which can be used to determine a worker's status. This can be found on the Gov.uk website www.gov.uk/guidance/check-employment-status-for-tax.
Thresholds
Companies Act thresholds are used to determine whether a company is 'small' for the purposes of the off-payroll working rules. These have been updated recently and the revised thresholds apply from 6 April 2025 for the purposes of the off-payroll working rules. A company will be 'small' if at least two of the following apply:
- turnover of not more than £15 million (previously £10.2 million);
- balance sheet total of not more than £7.5 million (previously £5.1 million); and
- monthly average employees of 50 or fewer.
Implications
The change in the threshold will shift the compliance burden from the end client to the worker's intermediary where the end client was not small under the former thresholds but meets the definition of 'small' under the revised thresholds. Workers providing their services through an intermediary after 5 April 2025 will need to check whether the end client is now small. End clients that are now 'small' will no longer need to comply with the IR35 rules. However, where the end client has become 'small', the worker's intermediary will now need to check whether the IR35 rules apply, and comply with them where they do.
Partner note: ITEPA 2003, Pt. 2, Chs. 8 and 10.