What is off-payroll working?

Off-payroll working is a term that has become increasingly prominent following changes to UK tax legislation that shifted responsibility for determining contractor tax status from the contractor to the engaging business in many cases. Understanding what off-payroll working means and how the rules apply helps founders manage contractor relationships compliantly and avoid unexpected tax liability.

Off-payroll working refers to arrangements in which individuals provide services through an intermediary — typically their own limited company — rather than being on the payroll of the business they work for. The off-payroll rules require the engaging business to assess whether the contractor's engagement would be one of employment if the intermediary did not exist. Where that assessment concludes employment would apply, the engaging business must deduct Income Tax and National Insurance from the contractor's fee before payment.

The off-payroll rules apply differently depending on the size of the engaging business — for small businesses, responsibility for assessment remains with the contractor's own company. The definition of small business is set by law and should be confirmed. Errors in status determination can create significant retrospective tax liability. Our guide to off-payroll working covers how the rules apply and what businesses need to do to comply.