Off-payroll working guide & FAQ for UK businesses

Last checked and updated on 12 May 2022

Off-payroll working is becoming an increasingly popular way for UK businesses to get the best talent for their team. But what is it, and what are the rules?

In this business guide, we will answer all of your questions about off-payroll working, so that you can stay compliant with the law. Keep reading to learn more!

What is off-payroll working?

Off-payroll working, also known as contracting, is when a worker is hired by a company to work on a specific project or task. The worker is not an employee of the company, and therefore does not receive the same benefits or protections as an employee. This includes things like sick pay, holiday pay, and pension contributions.

When is off-payroll working a good solution for employers?

There are a few circumstances when off-payroll working can be a good solution for employers. If you need someone with specialist skills or knowledge for a short-term project, then contracting can be a great way to get the help that you need without having to commit to an employee. It can also be helpful if you are looking to save on costs, as contractors typically charge less than employees.

What are the benefits of off-payroll working?

Off-payroll working can be beneficial for a number of reasons. One of the main benefits is that it can help businesses save money. Contractors typically charge less than employees, so it can be a more cost-effective way to get the help that you need.

Off-payroll working can also be a great solution for businesses who need specialist skills or knowledge for a short-term project. It allows you to hire the best talent for the job, without having to commit to an employee.

When is off-payroll working better for employees?

Off-payroll working can be a great way for employees to get started in their career. It can also be beneficial for those who want to take on short-term projects or contract work.

What are the pros and cons of employees versus contractors?

There are a few key differences between employees and contractors that you should be aware of. Employees receive benefits such as sick pay, holiday pay, and pension contributions. Contractors, on the other hand, do not typically receive these benefits.

Another key difference is that employees are typically paid a salary, while contractors are usually paid an hourly rate. This can be a pro or a con, depending on your needs. Employees may be more expensive in the long run, but they offer stability and security. Contractors are typically less expensive, but there is always a risk that they will not complete the project.

What are the rules for off-payroll working?

Off-payroll working is subject to specific rules and regulations, and the rules can be a little confusing, so let’s break them down.

  • First of all, off-payroll working is only allowed in specific circumstances. The worker must be self-employed, and they must be working on a specific project or task.
  • The worker cannot be an employee of the company, and they cannot have any expectation of becoming an employee in the future.
  • The worker must be paid a rate that is equivalent to or higher than the National Minimum Wage, and they must receive all of their payments through an intermediary (like an umbrella company).
  • The company cannot deduct any costs from the worker’s pay, and the worker cannot have any employment rights or protections.

What legislation governs off-payroll working?

The legislation that governs off-payroll working is the Intermediaries Legislation (IR35). This legislation was introduced in 2000, and it sets out the rules and regulations for off-payroll working.

What changes were made to IR35 in April 2021?

The most recent change to IR35 was made in April 2021, and it affects the way that off-payroll working is taxed.

Previously, the worker was responsible for paying their own taxes, but from April 2021, the company will be responsible for deducting taxes from the worker’s pay.

This change only applies to workers who are classed as ‘inside IR35’, and it means that companies will have to pay more attention to the way they engage with contractors.

How can a Personal Service Company help?

If you are a contractor, you may be able to set up a Personal Service Company (PSC). This is a company that is specifically designed for contractors, and it can help you to comply with the rules of off-payroll working.

A PSC can also help you to save money on taxes, as you will be able to claim expenses such as travel and accommodation.

If you are thinking of setting up a PSC, it is important to get advice from a professional, as there are a number of rules and regulations that you need to be aware of.

What impact does off-payroll working have on tax for businesses and employees?

Off-payroll working can have a significant impact on tax for businesses and employees.

  • Businesses need to be aware of their obligations under the Intermediaries Legislation, and they should make sure that they are deducting the correct amount of tax from the worker’s pay.
  • Employees need to be aware of their rights and responsibilities, and they should make sure that they are paying the correct amount of tax.

If you’re not sure about anything, it’s always best to speak to a qualified accountant or tax advisor.

Off-payroll working in the Public Sector

The rules for off-payroll working in the Public Sector are different to the rules for private sector businesses.

In the Public Sector, all workers must be employees, and they must pay tax through PAYE.

There is no such thing as ‘inside IR35’ in the Public Sector, and all workers are treated as ‘ outside IR35’.

This means that the Public Sector is not affected by the changes to IR35 in April 2021.

What documents must be submitted to HMRC in relation to off-payroll working?

When a company hires a worker for off-payroll working, they must submit a number of documents to HMRC. This includes the worker’s contract, invoices, and timesheets. The company must also keep records of all payments made to the worker.

What are the compliance risks with off-payroll working?

There are a few compliance risks that businesses need to be aware of when using off-payroll working arrangements. Firstly, you need to make sure that the workers you hire are genuinely self-employed. This means that they should be running their own business, and not be under the control of your company.

Secondly, you need to ensure that you are paying the correct taxes and National Insurance contributions for these workers. Ignorance of the law is not an excuse, so it is important to make sure you are fully compliant with all of the regulations surrounding off-payroll working.

How can a business ensure compliance?

The best way to ensure compliance with the law when using off-payroll working arrangements is to work with an accountant or other specialist advisor. They will be able to help you make sure that you are meeting all of the requirements, and that your workers are being treated fairly.

How to check your employment status

It is important to check your employment status before you start work, to make sure that you are classified correctly.

You can do this by using the HMRC Employment Status Indicator tool. This tool will ask you a series of questions about your working arrangements, and it will give you an indication of whether you are an employee or self-employed.

Ten steps to ensure compliance

Ignorance of the law is not an excuse, so it is important to make sure you are fully aware of the regulations surrounding off-payroll working. Here are ten steps that you can take to ensure compliance with the law when using off-payroll working arrangements:

  1. Work with an accountant or other specialist advisor to make sure you are meeting all of the requirements.
  2. Make sure your workers are genuinely self-employed.
  3. Pay the correct taxes and National Insurance contributions for these workers.
  4. Ensure that the workers are paid a rate that is equivalent to or higher than the National Minimum Wage.
  5. Do not deduct any costs from the worker’s pay.
  6. The worker cannot have any employment rights or protections.
  7. Make sure you understand the Intermediaries Legislation (IR35).
  8. Work with an accountant or other specialist advisor to make sure you are compliant with all of the regulations.
  9. Keep up to date with any changes in the law.
  10. This can be a complex area, so it is important to seek professional advice if you are unsure about anything.

Penalties for non-compliance

If you are found to be non-compliant with the law, you could face a number of penalties. These include fines, backdated taxes and National Insurance contributions, and even jail time. In serious cases, your company could be wound up.

HMRC can issue a fine of up to £100,000, and the worker could also take legal action against the company.

Getting professional advice

If you are thinking of using off-payroll working for your business, then it is important to make sure that you are compliant with the law. You should always get advice from an expert before making any decisions, as the rules can be complex.

How payroll bureaus can help

There are a number of payroll bureaus that can help you with your off-payroll working arrangements. They will be able to advise you on the best way to comply with the law, and they can also handle all of the paperwork for you. This can take a lot of the stress out of complying with the law, and it will ensure that your workers are treated fairly.

Conclusion

To recap, here are the main points from this article:

  • Off-payroll working is when a worker is hired by a company, but they are not an employee of that company.
  • The rules for off-payroll working in the Public Sector are different to the rules for private sector businesses.
  • In the Public Sector, all workers must be employees, and they must pay tax through PAYE.
  • There is no such thing as ‘ inside IR35’ in the Public Sector, and all workers are treated as ‘ outside IR35’.
  • When a company hires a worker for off-payroll working, they must submit a number of documents to HMRC. This includes the worker’s contract, invoices, and timesheets.
  • The company must also keep records of all payments made to the worker.
  • There are a few compliance risks that businesses need to be aware of when using off-payroll working arrangements. These include making sure that workers are genuinely self-employed, and paying the correct taxes and National Insurance contributions.
  • The best way to ensure compliance with the law when using off-payroll working arrangements is to work with an accountant or other specialist advisor.
  • You can check your employment status by using the HMRC Employment Status Indicator tool.

Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. We recommend that you always speak to a qualified professional to get advice about how to operate your business under your specific requirements and circumstances.