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The fee-payer is the entity that pays the contractors’s limited company or other intermediary for the contractors services. The fee-payer will also be the entity directly above the contractor’s limited company in the IR35 supply chain. This could be the client if it is a direct engagement, but most common is for it to be a recruitment agency.
However, to be the fee-payer you must meet the following qualifying conditions:
– Be resident or have a place of business in the UK
– Pay the contractors limited company that provided the contractor and the services (the worker)
– Not be controlled or have any material interest held by either: a) a worker, alone or with one or more associates of a worker or b) an associate of a worker, with or without other associates.
If the off-payroll rules apply, the fee-payer is responsible for:
– Deducting Income Tax (PAYE) and employee National Insurance contributions, and paying these to HMRC
– Paying employer National Insurance contributions and Apprenticeship Levy, if applicable, to HMRC.
However, the responsibility of being the fee-payer will pass to the next party in the IR35 supply chain if the current fee-payer:
– Does not meet the qualifying conditions
– Passes on the SDS determination to the next party in the IR35 supply chain.
If no other party in the supply chain meets the conditions, then the client remains as the fee-payer.
Finally, the fee-payer should always keep records of any payments made, along with the amounts of Income Tax, National Insurance contributions and any other relevant deductions made and reported to HMRC.
The client is responsible for assessing the IR35 status and issuing the Status Determination Statement (SDS), as well as providing the dispute resolution procedure. However, if they do not pass the SDS on as required (most often to the agency and the contractor) then things can change.
If an entity in the IR35 supply chain receives the SDS but does not pass it on to the next entity, they become the ‘deemed employer’ (the fee-payer) and become responsible for deducting Income Tax and employee National Insurance contributions and paying these to HMRC. They also become responsible for the employer National Insurance contributions and Apprenticeship Levy.
This entity remains the ‘deemed employer’ (fee-payer) until the SDS is passed on, meaning if the client does nothing at all then they become responsible.
