Off-payroll Rules (public sector) - Fee payer responsibilities

21 February 2018

The intermediaries’ legislation (commonly known as ‘IR35’) ensures that individuals who work through their own company pay employment taxes in a similar way to employees, where they would be employed were it not for the personal service company (PSC) or other intermediary that they work through.

New rules, introduced in April 2017 for public sector engagements, moves responsibility for deciding if the off-payroll rules for engagements apply from an individual worker’s intermediary to the public authority. The measure makes the public authority responsible for deciding if employment taxes and NICs should be deducted from the gross payment due to the PSC.

Normally, the public authority will be the fee payer. However, where there is a further intermediary, or intermediaries, within the payment chain (positioned between the end client (the public authority) and the PSC), they will then become the ‘fee payer’ (‘fee payer’ making the actual payment to the PSC).

Where there is this further intermediary who becomes the fee payer, there is no scope for this further intermediary to disregard the decision provided by the public authority end engager. The fee payer should deduct employment taxes and NICs in accordance with the public authority view.

For example, if a PSC provides a service to a public authority through a further intermediary (such as an umbrella company), and the public authority has provided a view that the IR35 legislation applies to that engagement, the umbrella company must apply deductions to the gross payment. The umbrella company (or similar intermediary) should not provide any alternative view that will remove the requirement for tax and NIC deduction to be applied. The fee payer must be registered with HMRC as an employer and report payments and deductions via a ‘full Payment Submission’, further guidance can be found here.


This information was published in the February edition of the Employer Bulletin.