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Deemed employment

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IR35 or off-payroll working rules is a tax law which was introduced by HMRC to combat tax avoidance by people who supply their services through an intermediary (such as a personal services company) who would otherwise be an employee. If the work is inside IR35 then HMRC will expect the correct employment taxes and National Insurance to be paid.

If you work through an intermediary which provides your services to an end user organisation in the private and third sectors under a contract for services, that intermediary (which could be your own company) is responsible for assessing your  employment status for tax purposes. If you would be an employee of the end user organisation for tax purposes if it were not for the intermediary, then HMRC will say that you are in deemed employment and PAYE and NICs must be deducted at source by the intermediary. Public sector organisations which contract with intermediaries for the services of individuals are responsible for this employment status assessment and for making deductions at source before making payment to the intermediary.

Your earnings will be in the form of the Deemed Employment Payment because it is ‘deemed’ to be your income.  Deemed payment is usually paid out on 5 April at the end of each tax year.

From 6 April 2020, medium and large incorporated companies in the private and third sectors will take on this duty to decide on employment status and to deduct PAYE / NICs at source before making payments to the intermediary.

Companies are caught by these new rules if two or more of the following apply for two consecutive accounting years:

  • Turnover of more than £10.2m;
  • Balance sheet of more than £5.1m;
  • Average number of employees by headcount (over the accounting year) of more than 50.

See:

April 2020 changes to off-payroll working for intermediaries

How to calculate the deemed employment payment

Private sector off-payroll working for intermediaries

Check your employment status for tax purposes

Employment Rights of Workers and Employees

How to work out if you are an employee or self-employed

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