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IR35 Deemed Salary Payments and related PAYE & NICs

A basic introduction to IR35 Contracts and Deemed Salary Payments for Freelancers….


Does IR35 Legislation apply to me?

  • If you are contracting out your personal services via a Limited Company or a Partnership then, yes it is certainly something you need to be aware of.
  • IR35 rules will then apply if, on any given contract, you would have been classed as an employee of your client, had the Ltd Company or Partnership not been in between you and the client.
  • It works on a contract by contract basis. So for one contract you may fall under IR35 but on others you do not.


How do I know if I would have been considered an employee?

  • For each contract you do ask yourself the following questions.
  • If you answer yes to most of the following  then you are likely to have been considered an employee for that contract, and IR35 rules apply:
  1. Do you work set hours, or a given number of hours a week or a month?
  2. Do you have to do the work yourself rather than hire someone else to do the work for you?
  3. Can someone tell you at any time what to do, when to work or how to do the work?
  4. Are you paid by the hour, week or month?
  5. Can you get overtime pay?
  6. Do you work at the premises of the person you work for, or at a place or places he or she decides?
  7. Do you generally work for one client at a time, rather than having a number of contracts?


  • If you answer yes to most of the following then you are more likely to have been working outside of IR35, and not an employee of your client:
  1.  Do you have the final say in how you do the work for the client?
  2.  Can you make a loss on the contract?
  3. Do you have to provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves?
  4. Are you free to hire other people on your own terms to do the work you have taken on?
  5. If you are free to hire other people on your own terms, do you pay them out of your own pocket?
  6. Do you have to correct unsatisfactory work in your own time and at your own expense?
  7. Do you have a number of clients at the same time?


  • If you have lots of different clients, that may be a sign you are self employed and not employed by an individual client, although you still need to look at each contract in turn.
  • The way your business is set up and run is also a factor and can indicate that you are self employed, even when a contract may indicate employment.
  • If you aren’t sure you can take the 10 minute Contractor IR35 Test to see if you are likely to be working under IR35.
  • HMRC also have an independent IR35 Helpline on 0845 303 3535 where you can get answers to one-off queries, or request a contract review from staff. If they find that your contract is outside of IR35 you will be issued with a certificate which is valid for 3 years.


What happens if one or some of my contracts fall under IR35?

  • You may need to pay some additional PAYE and National Insurance on the taxable income from these contracts at the end of the financial year.
  • So your company will continue you pay you as usual throughout the year deducting PAYE and NICs as applicable.
  • At the end of the tax year you will need to check you have paid the right amount of tax and NI by calculating the deemed employment payment due on the IR35 contract(s) undertaken.


How do I calculate any ‘deemed salary’ and the related PAYE and NI?

  • A step-by-step guide for how to calculate ‘deemed salary’ and related NICs can be found on the HMRC website.
  • HMRC also have a IR35 ‘deemed salary’ calculation spreadsheet which can be downloaded. Paste www.hmrc.gov.uk/ir35/ir35.xlt into your browser to download the spreadsheet.
  • Alternatively, contact me to discuss how I can be of help in calculating your IR35 contract(s) ‘deemed salary’ and NIC liabilities.


How and when is the additional tax and NI reported?

  • Any ‘deemed salary’ owed and the related PAYE and NI need to be reported to HMRC by the 19th May following the end of the tax year.
  • Currently this is reported on the P35 Employer’s Annual Return. However, in future it will be reported under the Real Time Information reporting system.
  • If it isn’t possible to calculate the ‘deemed salary’ by this time you can put in provisional figures and mark them as so. You must send final figures by 31st January following the end of the tax year.


How and when is the additional tax and NI paid?

  • The additional tax and NI should be paid along with PAYE and NI by 19th April following the end of the tax year. So before the year end return deadline!
  • If this is a provisional sum then the balance needs to be paid as soon as possible and before 31st January following the end of the tax year.


Do I need to pay myself the deemed salary? I only take dividends, do they count?

  • You don’t need to actually pay yourself the salary, although it is a deductable expense for Corporation Tax purposes.
  • If you had paid yourself the salary during the year of the IR35 contract then the ‘deemed salary’ would have been less. You can’t retrospectively pay yourself the salary without incurring more tax.
  • You can, however, pay dividends and offset the ‘deemed salary’ against these. This claim will reduce the amount of reportable dividends for tax purposes.

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