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[F1[F2Part 2 E+W+S Intermediaries – workers' services provided to public authorities or medium or large clients]

Textual Amendments

Engagements to which this Part appliesE+W+S

13.—(1) Regulations 14 to 18 apply where—

(a)an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“the client”),

F3(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), F4...

[F5(ca)the client—

(i)is a public authority, or

(ii)is a person who qualifies as medium or large and has a UK connection for one or more tax years during which the arrangements mentioned in sub-paragraph (c) have effect, and]

(d)the circumstances are such that—

(i)if the services were provided under a contract directly between the client and the worker, the worker would be regarded for the purposes of Parts I to V of the Contributions and Benefits Act as employed in employed earner’s employment by the client, or

(ii)the worker is an office-holder who holds that office under the client and the services relate to that office.

[F6(1A) But regulations 14 to 18 do not apply if—

(a)the client is an individual, and

(b)the services are provided otherwise than for the purposes of the client's trade or business.]

(2) The references in sub-paragraph (1)(c) to “third party” includes a partnership or unincorporated association of which the worker is a member.

(3) The circumstances referred to in sub-paragraph (1)(d) includes the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.

(4) Holding office as a statutory auditor of the client does not count as holding office under the client for the purposes of sub-paragraph (1)(d).

Textual Amendments

Worker treated as receiving earnings from employmentE+W+S

14.—(1) If one of conditions A to C in paragraphs (9) to (11) is met, identify the chain of two or more persons where—

(a)the highest person in the chain is the client,

(b)the lowest person in the chain is the intermediary, and

(c)each person in the chain above the lowest makes a chain payment to the person immediately below them in the chain.

(See regulation 21 for cases where one of conditions A to C is treated as being met).

(2) In this Part—

(a)“chain payment” means a payment, or money’s worth that can reasonably be taken to be for the worker’s services to the client,

(b)“make” in relation to a chain payment that is money’s worth, means transfer, and

(c)“the fee-payer” means the person in the chain immediately above the lowest.

(3) The fee-payer is treated as making to the worker, and the worker is treated as receiving, a payment (“the deemed direct earnings”) which is to be treated for the purposes of Parts 1 to 5 of the Contributions and Benefits Act as earnings from an employed earner’s employment, but this is subject to paragraphs (5) to (7) [F7and (8A)] and regulations 20[F8, 20A][F9, 22 and 24].

(4) The deemed direct earnings are treated as paid at the same time as the chain payment made by the fee-payer.

[F10(5) Unless and until the client gives a status determination statement to the worker in accordance with regulation 14A, paragraphs (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client; but this is subject to [F11regulations 22 and 24].

(5A) Paragraphs (6) and (7) apply, subject to regulations 20, 20A[F12, 22 and 24], if—

(a)the client has given a status determination statement to the worker,

(b)the client is not the fee-payer, and

(c)the fee-payer is not a qualifying person.]

(6) If there is no person in the chain below the highest and above the lowest who is a qualifying person, paragraphs (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client.

(7) Otherwise, paragraphs (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the person in the chain who—

(a)is above the lowest,

(b)is a qualifying person, and

(c)is lower in the chain than any other person in the chain who—

(i)is above the lowest, and

(ii)is a qualifying person.

(8) In paragraphs (5) to (7) a “qualifying person” is a person who—

[F13(za)has been given by the person immediately above them in the chain the status determination statement given by the client to the worker,]

(a)is resident in the United Kingdom or has a place of business in the United Kingdom,

(b)is not a person who is controlled by—

(i)the worker, alone or with one or more associates of the worker, or

(ii)an associate of the worker, with or without other associates of the worker, and

(c)if a company, is not one in which—

(i)the worker, alone or with one or more associates of the worker, or

(ii)an associate of the worker, with or without other associates of the worker,

has a material interest (within the meaning given by section 51(4) and (5) of ITEPA 2003 (meaning of material interest)).

[F14(8A) If the client is not a public authority, a person is to be treated by paragraph (3) as making a payment of deemed direct earnings to the worker only if the chain payment made by the person is made in a tax year for which the client qualifies as medium or large and has a UK connection.]

(9) Condition A is that—

(a)the intermediary is a company, and

(b)the conditions in regulation 15 are met in relation to the intermediary.

(10) Condition B is that—

(a)the intermediary is a partnership,

(b)the worker is a member of the partnership,

(c)the provision of the services is by the worker as a member of the partnership, and

(d)the condition in regulation 16 is met in relation to the intermediary.

(11) Condition C is that the intermediary is an individual.

(12) Where a payment or money’s worth can reasonably be taken to be for both—

(a)the worker’s services to the client, and

(b)anything else,

then, for the purposes of this Part, so much of it as can, on a just and reasonable apportionment, be taken to be for the worker’s services is to be treated as (and the rest is to be treated as not being) a payment or money’s worth, that can reasonably be taken to be for the worker’s services.

Textual Amendments

[F15Meaning of status determination statementE+W+S

14A.—(1) For the purposes of regulation 14 “status determination statement” means a statement by the client that—

(a)states that the client has concluded that the condition in regulation 13(1)(d) is met in the case of the engagement and explains the reasons for that conclusion, or

(b)states (albeit incorrectly) that the client has concluded that the condition in regulation 13(1)(d) is not met in the case of the engagement and explains the reasons for that conclusion.

(2) But a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned in it.]

Textual Amendments

Conditions where intermediary is a companyE+W+S

15.—(1) The conditions mentioned in regulation 14(9)(b) are that—

(a)the intermediary is not an associated company of the client that falls within sub-paragraph (2), and

[F16(b)paragraph (1A) or (1B) is satisfied.]

[F17(1A) This paragraph is satisfied where the worker has a material interest in the intermediary.]

[F17(1B) This paragraph is satisfied where—

(a)the worker has a non-material interest in the intermediary,

(b)the worker—

(i)has received,

(ii)has rights which entitle, or which in any circumstances would entitle, the worker to receive, or

(iii)expects to receive,

a chain payment from the intermediary, and

(c)the chain payment does not, or will not, wholly constitute earnings from an employed earner’s employment of the worker (apart from as a result of this Part).]

(2) An associated company of the client falls within this paragraph if it is such a company by reason of the intermediary and the client being under the control—

(a)of the worker, or

(b)of the worker and other persons.

(3) The worker is treated as having a material interest in the intermediary if—

(a)the worker, alone or with one or more associates of the worker, or

(b)an associate of the worker, with or without other associates of the worker,

has a material interest in the intermediary.

(4) For this purpose “material interest” has the meaning given by section 51(4) and (5) of ITEPA 2003.

[F18(4A) The worker is treated as having a non-material interest in the intermediary if—

(a)the worker, alone or with one or more associates of the worker, or

(b)an associate of the worker, with or without other associates of the worker,

has a non-material interest in the intermediary.]

[F18(4B) For this purpose a non-material interest means—

(a)beneficial ownership of, or the ability to control, directly or through the medium of other companies or by any other indirect means, 5% or less of the ordinary share capital of the company,

(b)possession of, or entitlement to acquire, rights entitling the holder to receive 5% or less of any distributions that may be made by the company, or

(c)where the company is a close company, possession of, or entitlement to acquire, rights that would in the event of the winding up of the company, or in any other circumstances, entitle the holder to receive 5% or less of the assets that would then be available for distribution among the participators.]

[F18(4C) In paragraph (4B)(c)—

“close company” has the meaning given by section 989 of the Income Tax Act 2007;

“participator” has the meaning given by section 454 of CTA 2010.]

(5) In this regulation “associated company” has the meaning given by section 449 of CTA 2010.

Textual Amendments

Conditions where intermediary is a partnershipE+W+S

16.—(1) The condition mentioned in regulation 14(10)(d) is—

(a)that the worker, alone or with one or more relatives, is entitled to 60 per cent or more of the profits of the partnership, or

(b)that most of the profits of the partnership derive from the provision of services under engagements to which one or other of this Part and Part 1 applies—

(i)to a single client, or

(ii)to a single client together with associates of that client, or

(c)that under the profit sharing arrangements the income of any of the partners is based on the amount of income generated by that partner by the provision of services under engagements to which one or other of this Part and Part 1 applies.

(2) In sub-paragraph (1)(a) “relative” means spouse or civil partner, parent or child or remoter relation in the direct line, or brother or sister.

F19(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Calculation of deemed direct earningsE+W+S

17.—(1) The amount of the deemed direct earnings is the amount resulting from the following steps—

Step 1

Identify the amount or value of the chain payment made by the person who is treated as making the deemed direct earnings, and deduct from that amount so much of it (if any) as is in respect of value added tax.

Step 2

Deduct, from the amount resulting from Step 1, so much of that amount as represents the direct cost to the intermediary of materials used, or to be used, in the performance of the services.

Step 3

Deduct, at the option of the person treated as making the deemed direct earnings, from the amount resulting from Step 2, so much of that amount as represents expenses met by the intermediary that under ITEPA 2003 would have been deductible from the taxable earnings of the employment under section 10 ITEPA 2003, in accordance with section 327(3) to (5) of that Act, if—

(a)the worker had been employed by the client, and

(b)the expenses had been met by the worker out of those earnings.

Step 4

If the amount resulting from the preceding Steps is nil or negative, there are no deemed direct earnings. Otherwise, that amount is the amount of the deemed direct earnings.

(2) For the purposes of Step 1 of paragraph (1), exclude amounts on which Class 1 or Class 1A contributions are payable by virtue of regulation 3 or 4 of the Social Security Contributions (Limited Liability Partnership) Regulations 2014.

(3) In paragraph (1), the reference to the amount or value of the chain payment means the amount or value of that payment before the deduction (if any) permitted under regulation 19.

(4) If the actual amount or value of the chain payment mentioned in Step 1 of paragraph (1) is such that its recipient bears the cost of amounts due under the Income Tax (Pay As You Earn) Regulations 2003 or the Contributions Regulations in respect of the deemed direct earnings, that Step applies as if the amount or value of the chain payment were what it would be if the burden of that cost were not being passed on through the setting of the level of the payment.

(5) In Step 3 of paragraph (1), the reference to “expenses met by the intermediary” includes—

(a)expenses met by the worker and reimbursed by the intermediary, and

(b)where the intermediary is a partnership and the worker is a member of the partnership, expenses met by the worker for and on behalf of the partnership.

(6) The deemed direct earnings are to be assessed on the amount of such earnings paid, or treated as paid, in the earnings period specified in regulations 3 to 6 or 8 of the Contributions Regulations.

(7) For the purposes of paragraph (6), the definition of “regular interval” in regulation 1(2) of the Contributions Regulations is to be read as if “employed earner” were replaced with “intermediary” and the words “of earnings” were deleted.

Application of Social Security Contributions and Benefits Act 1992 to deemed employmentE+W+S

18.—(1) This regulation applies where deemed direct earnings are treated as having been paid in any tax year under regulation 14.

(2) For the purposes of Parts 1 to 5 of the Contributions and Benefits Act—

(a)the amount of any deemed direct earnings calculated under regulation 17 shall be treated as remuneration derived from an employed earner’s employment,

(b)the worker shall be treated, in relation to the deemed direct earnings as employed in employed earner’s employment by the person treated as making the payment of deemed direct earnings,

(c)the services were performed, or are to be performed, by the worker in the course of performing the duties of that employment, and

(d)the person treated as making the payment of deemed direct earnings shall be treated as the secondary contributor in relation to the deemed direct earnings.

Deductions from chain paymentsE+W+S

19.—(1) This regulation applies if, as a result of regulation 18, a person who is treated as making a payment of deemed direct earnings is required under the Contributions Regulations to pay primary Class 1 contributions to the Commissioners for Her Majesty’s Revenue and Customs (the Commissioners) in respect of the payment.

(But see paragraph (4)).

(2) The person may deduct from the underlying chain payment an amount which is equal to the amount payable to the Commissioners in respect of primary Class 1 contributions, but where the amount or value of the underlying chain payment is treated by regulation 17(4) as increased by the cost of any amount due under the Contributions Regulations, the amount that may be deducted is limited to the difference (if any) between the amount of primary Class 1 contributions payable to the Commissioners and the amount of that increase.

(3) Where a person in the chain other than the intermediary receives a chain payment from which an amount has been deducted in reliance on paragraph (2) or this paragraph, that person may deduct the same amount from the chain payment made by them.

(4) This regulation does not apply in a case to which regulation 22(2) applies.

(5) In paragraph (2) “the underlying chain payment” means the chain payment whose amount is used at Step 1 of regulation 17(1) as the starting point for calculating the amount of the deemed direct earnings.

[F20Client-led status disagreement processE+W+S

20.—(1) This regulation applies if, before the final chain payment is made in the case of an engagement to which this Part applies, the worker or the deemed employer makes representations to the client that the conclusion contained in a status determination statement is incorrect.

(2) The client must either—

(a)give a statement to the worker or (as the case may be) the deemed employer that—

(i)states that the client has considered the representations and has decided that the conclusion contained in the status determination statement is correct, and

(ii)states the reasons for that decision, or

(b)give a new status determination statement to the worker and the deemed employer that—

(i)contains a different conclusion from the conclusion contained in the previous status determination,

(ii)states the date from which the client considers that the conclusion contained in the new status determination statement became correct, and

(iii)states that the previous status determination statement is withdrawn.

(3) If the client fails to comply with the duty in paragraph (2) before the end of the period of 45 days beginning with the date the client receives the representations, regulation 14(3) and (4) has effect from the end of that period until the duty is complied with as if for any reference to the fee-payer there were substituted a reference to the client; but this is subject to [F21regulations 22 and 24].

(4) A new status determination statement given to the deemed employer under paragraph (2)(b) is to be treated for the purposes of regulation 14(8)(za) as having been given to the deemed employer by the person immediately above the deemed employer in the chain.

(5) In this regulation—

“the deemed employer” means the person who, assuming one of conditions A to C in regulation 14 were met, would be treated as making a payment of deemed direct earnings to the worker under regulation 14(3) on the making of a chain payment;

“status determination statement” has the meaning given by regulation 14A.

Textual Amendments

Duty for client to withdraw status determination statement if it ceases to be medium or largeE+W+S

20A.—(1) This regulation applies if in the case of an engagement to which this Part applies—

(a)the client is not a public authority,

(b)the client gives a status determination statement to the worker, the client's agent or both, and

(c)the client does not (but for this regulation) qualify as medium or large for a tax year beginning after the status determination statement is given.

(2) Before the beginning of the tax year the client must give a statement to the relevant person, or (as the case may be) to both of the relevant persons, stating—

(a)that the client does not qualify as medium or large for the tax year, and

(b)that the status determination statement is withdrawn with effect from the beginning of the tax year.

(3) If the client fails to comply with that duty the following rules apply in relation to the engagement for the tax year—

(a)the client is to be treated as medium or large for the tax year, and

(b)regulation 14(3) and (4) has effect as if for any reference to the fee-payer there were substituted a reference to the client.

(4) For the purposes of paragraph (2)—

(a)the worker is a relevant person if the status determination statement was given to the worker, and

(b)the deemed employer is a relevant person if the status determination statement was given to the client's agent.

(5) In this regulation—

“client's agent” means a person with whom the client entered into a contract as part of the arrangements mentioned in regulation 13(1)(c);

“the deemed employer” means the person who, assuming one of conditions A to C in regulation 14 were met, would be treated as making a payment of deemed direct earnings to the worker under regulation 14(3) on the making of a chain payment;

“status determination statement” has the meaning given by regulation 14A.]

Textual Amendments

Information to be provided by worker [F22or intermediary] and consequences of failureE+W+S

21.—(1) In the case of an engagement to which this Part applies, [F23the relevant person] must inform the potential deemed employer of which one of the following is applicable—

(a)that one of conditions A to C in regulation 14 is met in the case,

(b)that none of conditions A to C in regulation 14 is met in the case.

(2) If [F24the relevant person] has not complied with paragraph (1), then for the purposes of regulation 14(1), one of conditions A to C in regulation 14 is to be treated as met.

(3) In this regulation[F25—

“relevant person” means the worker or, in a case where the worker has not complied with paragraph (1), the intermediary;]

“the potential deemed employer” is the person who, if one of conditions A to C in regulation 14 were met, would be treated as making a payment of deemed direct earnings to the worker under regulation 14(3).

Textual Amendments

Consequences of providing fraudulent informationE+W+S

22.—(1) Paragraph (2) applies if in any case—

(a)a person (“the deemed employer”) would, but for this paragraph, be treated by regulation 14(3) as making a payment to another person (“the services-provider”), and

(b)the fraudulent documentation condition is met.

(2) Regulation 14(3) has effect in the case as if the reference to the fee-payer were a reference to the [F26relevant person (or if more than one, the first relevant person) in relation to whom the fraudulent documentation condition is met], but

(a)regulation 14(4) continues to have effect as if the reference to the fee-payer were a reference to the deemed employer, and

(b)Step 1 of regulation 17(1) continues to have effect as referring to the chain payment to be made by the deemed employer.

(3) Paragraph (2) has effect even though that [F27may involve a services-provider] being treated as both employer and employee in relation to the deemed employment under regulation 14(3).

(4) “The fraudulent documentation condition” is that a relevant person provided any person with a fraudulent document intended to constitute evidence—

(a)that the case is not an engagement to which this Part applies, or

(b)that none of the conditions A to C in regulation 14 is met in the case.

(5) For the purposes of this regulation a “relevant person” is—

(a)the services-provider,

(b)a person connected with the services-provider,

(c)if the intermediary in the case is a company, an office-holder in that company.

[F28(d)a person in the chain who fulfils the conditions as to residence and presence for liability to pay secondary Class 1 contributions prescribed under section 1(6)(a) of the Contributions and Benefits Act.]

Textual Amendments

Prevention of double liability to national insurance contributions and allowance of certain deductionsE+W+S

23.—(1) Paragraph (2) applies where—

(a)a person (“the payee”) receives a payment (“the end-of-line remuneration”) from another person (“the paying intermediary”),

(b)the end-of-line remuneration can reasonably be taken to represent remuneration for services of the payee to [F29another person (“the client”)],

(c)a payment (“the deemed payment”) has been treated by regulation 14(3) as paid to the payee,

(d)the underlying chain payment can reasonably be taken to be for the same services of the payee to [F30the client], and

(e)the recipient of the underlying chain payment has (whether by deduction from that payment or otherwise) borne the cost of any amounts due, under Income Tax (Pay As You Earn) Regulations 2003 and Contributions Regulations in respect of the deemed payment from the person treated by regulation 14(3) as making the deemed payment.

(2) For national insurance contributions purposes, the paying intermediary may treat the amount of the end-of-line remuneration as reduced (but not below nil) by the amount (see regulation 17) of the deemed payment less the amount of income tax and primary Class 1 national insurance contributions deducted from that amount.

(3) Nothing in paragraph (2) shall be read as removing a worker’s entitlement to Statutory Maternity Pay which would have existed but for the operation of that paragraph.

(4) In sub-paragraph (1)(d) “the underlying chain payment” means the chain payment whose amount is used at Step 1 of regulation 17(1) as the starting point for calculating the amount of the deemed direct earnings.]

Textual Amendments

[F31Anti-avoidanceE+W+S

24.—(1) This regulation applies if in any case at least one relevant person in a chain participates in a relevant avoidance arrangement.

(2) An arrangement is a “relevant avoidance arrangement” if its main purpose, or one of its main purposes, is to secure a NICs advantage by securing that at least one of the conditions mentioned in regulation 15 or 16 is not met in relation to an intermediary.

(3) Regulation 14(3) has effect as if the reference to the fee-payer were a reference to the participating person, but—

(a)regulation 14(4) continues to have effect as if the reference to the fee-payer were a reference to the deemed employer, and

(b)Step 1 of regulation 17(1) continues to have effect as referring to the chain payment made by the deemed employer.

(4) The “participating person” is—

(a)in a case where only one relevant person participates in the arrangement, that person;

(b)in any other case the highest relevant person in the chain who participated in the arrangement and from whom Her Majesty’s Revenue and Customs considers there is a realistic prospect of recovering, within a reasonable period, the amount of NICs that would have been paid (or not repaid) in the absence of the arrangement.

(5) Paragraph (3) has effect even though that may involve a participating person being treated as both employer and employee in relation to the deemed employment under regulation 14(3).

(6) In this regulation—

“arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

“deemed employer” means a person who would, but for this regulation, be treated by regulation 14(3) as making a payment to the worker;

“NICs” means National Insurance contributions (and “NICs advantage” is to be construed accordingly);

“NICs advantage” includes—

(a)

avoidance or reduction of a NICs liability,

(b)

repayment or increased repayment of NICs,

(c)

avoidance of a possible NICs liability, and

(d)

deferral of a payment of NICs or advancement of a repayment of NICs;

“relevant person” means—

(a)

the worker;

(b)

a person who fulfils the conditions as to residence and presence for liability to pay secondary Class 1 contributions prescribed under section 1(6)(a) of the Contributions and Benefits Act.]

Textual Amendments