Off-payroll working (IR35) in the public sector: pay an intermediary

19 September 2017

Guidance has been updated with an explanation of how to calculate the deemed direct payment to a worker who provides their services through an intermediary and is subject to the off-payroll working rules.

The deemed direct payment is the amount paid to the worker that should be treated as earnings for the purposes of the off-payroll rules.

To calculate the deemed direct payment you must:

  1. Work out the value of the payment to the worker’s intermediary, having deducted any VAT due
  2. Deduct the direct costs of materials that have, or will be used in providing their services
  3. Deduct expenses met by the intermediary that would have been deductible from taxable earnings if the worker was employed
  4. The resulting amount is the deemed direct payment. If it is nil or negative there is no deemed direct payment

You then need to deduct tax and NICs, as appropriate, from the deemed direct payment.

You’ll need to report the pay and deductions you make to HMRC using a Full Payment Submission (FPS), as you do for workers on your payroll.

You must also pay employer Class 1 NICs due in respect of these engagements, and report them to HMRC.

You don’t have to add these workers to your existing payroll, but you can do this if you wish. If the payments are not reported under your existing PAYE scheme, then you’ll have to open a new one.

You should keep a record of the deemed direct payment, Income Tax and NICs deducted on a deductions working sheet.