If your multinational group engages individuals to work in the UK through their own limited companies or umbrella companies, you need to be aware of the UK’s Off-Payroll Working Rules, also known as IR35. These rules are designed to prevent situations where individuals act like employees but avoid employment taxes by working through an intermediary such as a Personal Service Company (PSC).
Many overseas-headquartered businesses with UK operations unknowingly fall foul of the rules by assuming that engaging someone on a self-employed basis is enough to avoid payroll obligations. Unfortunately, this is not the case in the UK, and non-compliance can result in significant liabilities.
The IR35 legislation ensures that individuals who work like employees are taxed like employees, even if they operate through an intermediary. The rules apply when an individual personally provides services to a UK entity via a company, agency, or partnership.
For medium and large businesses, the responsibility for assessing whether the IR35 rules apply lies with the end client (i.e. the UK entity receiving the worker’s services).
If IR35 applies, PAYE income tax and National Insurance Contributions (NICs) must be withheld from the payments made to the worker’s intermediary.
The IR35 rules apply to medium and large businesses. For a UK subsidiary, the size of the worldwide group is considered. Your company will be within the scope of the rules if the group meets two or more of the following criteria:
These thresholds must be exceeded for two consecutive years to fall under the rules.
If you are within scope, you must:
If you engage workers via a third-party agency, you must still assess the IR35 status and issue an SDS. The agency, as the fee payer, will then be responsible for payroll compliance.
However, until you have met your obligations, you remain liable for any underpaid tax.
IR35 rules take precedence over CIS. Be careful not to confuse terminology:
If you are engaging subcontractors to work in the UK, don’t assume there are no payroll obligations. IR35 is a complex area, and getting it wrong can be costly.
We offer:
Contact us before engaging subcontractors in the UK so we can help you manage your risk and ensure full compliance.
Senior Associate
Global Mobility, Personal Tax & VAT
Senior Manager
Head of Direct Taxes
