Deemed employer payroll under Chapter 10 ITEPA 2003. We calculate the deemed direct payment, deduct PAYE and National Insurance, account for employer NICs and file the off-payroll reporting, so an inside-IR35 determination stops being a problem and becomes a pay run.
Where an engagement falls inside the off-payroll working rules, whoever pays the worker's limited company is treated as their employer for tax purposes only. The worker does not become your employee: no employment rights, no statutory sick or maternity pay, and no automatic enrolment duty. Only the tax changes. That mismatch is why it goes wrong, because standard payroll software treats everyone in it as an employee.
That mismatch is where it goes wrong. Payroll software treats everyone in it as an employee, so off-payroll workers have to be flagged in the RTI submission, kept out of pension assessment and reported separately.
What we run for each inside-IR35 engagement:
Decides the status with reasonable care, issues the Status Determination Statement to the worker and the next party down, and runs the disagreement process if it is challenged.
Usually the agency, or whoever pays the worker's company. Operates the deemed employer payroll, deducts and pays over the tax and NICs, and files.
Receives the payment net of deductions and reflects it correctly in its own accounts, so the same income is not taxed a second time on the way out.
Runs the deemed employer payroll for whoever is the fee-payer, keeps the reporting right and keeps the evidence, so the position holds up if HMRC looks at it later.
The duty lands in different places depending on how your chain is built. We work with all three positions.
You contract with the worker's limited company yourself, so you are both the client making the determination and the fee-payer operating the payroll. We run the deemed employer side and keep your determinations documented against each engagement.
You sit between a client and a contractor's company, which usually makes you the fee-payer and the one carrying the deduction. We process the inside-IR35 placements alongside your PAYE and umbrella workers without a second system or a second contact.
Where you supply outcomes rather than people the rules may not bite at all, but the analysis has to be done properly rather than assumed. We work through which engagements are genuinely contracted-out and run the payroll for the ones that are not.
Some duties cannot be outsourced. Being clear about that up front is worth more than a provider who promises to take it all away.
We will tell you if a determination looks unsupportable on the facts you have given us. That is not the same as making it for you, and we would be doing you no favours by pretending otherwise.
If an engagement is inside IR35 anyway, there is often a cleaner way to pay the person that gives them something in return.
If the engagement looks like employment for tax, employing them directly is often simpler and gives the worker rights, pension and statutory pay in exchange for the tax they were going to pay anyway.
Managed Payroll →A PEO arrangement gives the worker a genuine employment relationship with statutory entitlements, while you keep day-to-day direction of the work and we carry the administration.
PEO →Where the client is small under the Companies Act test, the older rules apply instead and the worker's own company handles the position. Worth confirming before anyone builds a process.
Contractor Payroll →Off-payroll working, without the jargon.
Deemed employment is a tax treatment, not an employment relationship. Where the off-payroll working rules in Chapter 10 of Part 2 ITEPA 2003 apply and an engagement is inside IR35, the party paying the worker's intermediary is treated as their employer for tax purposes. That party must deduct PAYE and employee National Insurance from the deemed direct payment and account for employer NICs on top. The worker does not become an employee of anyone for employment law purposes.
The end client makes the status determination and must issue a Status Determination Statement to the worker and to the next party in the chain. The fee-payer, usually the agency or whoever pays the worker's limited company, is the deemed employer and operates the payroll. If the client fails to take reasonable care over the determination, or the statement is not passed down the chain, the liability can move back up to the client. We set out where it sits in your chain before the first payment.
No, and no payroll provider should claim to. The determination is the end client's statutory duty and has to be made with reasonable care on the facts of each engagement. We run the payroll consequences of the decision you make, tell you plainly when a determination looks unsupportable, and keep the documentation in order so the position can be evidenced later.
You start from the amount payable to the worker's intermediary, take out any VAT, and take out the direct cost of materials the worker has met. What remains is the deemed direct payment. That figure is treated as employment income: PAYE and employee NICs are deducted from it, and employer NICs and, where it applies, the apprenticeship levy are paid on top of it by the deemed employer.
Not through the deemed employment. Chapter 10 changes the tax treatment only, so it does not create employment rights, statutory payments or an automatic enrolment duty for the deemed employer. Where you want the worker to have those things, you need a genuine employment route such as PEO or an umbrella arrangement instead, and we can run that as an alternative.
Since 6 April 2024 HMRC can set off tax and National Insurance already paid by the worker or their intermediary against the deemed employer's PAYE liability, so the same income is not taxed twice when a status decision is later found to be wrong. Getting the benefit of that offset depends on having the records to support it, which is one of the reasons we keep the paperwork for every inside-IR35 engagement.
Tell us who contracts with whom, who is paying the worker's company and what determinations have been issued. We will tell you where the deemed employer duty actually sits and what has to change.