The fee-payer is the party in an off-payroll (Chapter 10) chain that is responsible for operating PAYE and National Insurance on an inside-IR35 engagement. It is usually the agency closest to the contractor's PSC, the party that actually pays the PSC. Where there is no agency, the end client is the fee-payer.
Once the end client has issued a Status Determination Statement concluding that an engagement is inside IR35, the fee-payer must, before paying the PSC, deduct any VAT and the direct cost of materials, operate PAYE and employee Class 1 NIC on the remainder, and pay employer Class 1 NIC at 15% and the Apprenticeship Levy on top. The net amount then reaches the PSC having already been taxed.
The fee-payer's obligations are not unlimited. If the end client fails to pass down a valid SDS, or fails to take reasonable care, the liability can move up the chain to the client rather than resting with the fee-payer. HMRC's debt-transfer provisions also allow it to recover an unpaid PAYE debt from another party in the chain (ultimately the client) where a party fails to meet its obligations or cannot pay. See deemed employment payment for the calculation mechanics.