The IR35, also known as off-payroll working, rules are a set of regulations that govern how contractors are paid. These rules are designed to ensure that contractors are paid fairly and accurately. In this article, we'll show you how to set up IR35 in QuickBooks Online Advanced Payroll. Plus, we'll cover how to add a deemed employee.
For more information, check out the HMRC IR35 guidance.
Note: IR35 is currently not supported in Standard Payroll.
Set up IR35 in Advanced Payroll
- In QuickBooks, go to Payroll.
- Select the Payroll Settings tab.
- Under Business settings, select HMRC Settings.
- Find IR35 contractors.
- Select Yes.
- Select Save.
Add a deemed employee
The first thing you need to do is make sure that the employee meets the criteria for being classified as a deemed employee. To do this, you will need to look at the employment contract and see if it falls within the scope of the IR35 legislation.
You will need to add them to your payroll in the same way as you would any other employee. The only difference is you'll need to select IR35 legislation applies when you're in the employee's tax and NI details section.
Once the employee has been set up they will be identified as an IR35 contractor in the employee details. You can then process and include the deemed employee in a pay run to calculate tax and NICs due.
Key points
- The IR35 rules apply on a contract basis. This means that you'll need to check for any new contracts to see if they fall under the rules. Additionally, you may have some contracts with the same worker that fall within the rules and some that don't.
- If the rules apply, contractors will be classed an a 'deemed employee' for tax purposes. This means that any part of your invoices that relate to work will be subject to income tax and NI contributions.
- Deemed employees are not entitled to any holiday, sickness or parental payments and student/post-grad loan deductions should not be made.
- The deemed employer is not obliged to offer membership of a pension scheme, this includes auto-enrolment. This means that if you are contracting through an intermediary, you need to make sure that you are still making adequate provision for your retirement.
- The employer's NI is not included in the calculations for employment allowance.
- Apprenticeship levy calculations should be applied for deemed employees.
- When a deemed employee finishes they should receive a P45.
- Deemed employees can also be given a P60.
- The date the payment is actually made determines the tax period.
Useful tips
- For reporting purposes, you can set up a separate location for deemed employees, which then gives you the option to report specifically on deemed employees.
- You can also set up a separate pay schedule, this would allow you to create pay runs for deemed employees if you wanted to keep these separate from normal employee pay runs.
- You can keep a copy of the CEST (Check Employment Status for Tax) result as a PDF uploaded to the deemed employee within the documents section of the employee details.
