CheckLists.Tax (beta)
F9. Indirect provision of personal service
EMPLOYMENT INCOME: SERVICES THROUGH INTERMEDIARIES
Small clients, non-UK clients (excluding public authorities), non-business individuals (Ch.8)
- Determining client size
Donations and voluntary payments
- "Corporates which are charities almost certainly receive donations and other voluntary income which does not derive from the provision of goods and services. This would not therefore constitute turnover." (SAOG11232)
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- Deemed payment of employment income to worker by intermediary
General rule
- If (ITEPA s.49, s.50):
(1) An individual (the worker) personally performs services for another person (the client)
- Or is under an obligation personally to perform services
(2) The client is not a public authority (s.49(1)(aa)) and either (s.50(1)(za)):
(a) is small; or
(b) does not have a UK connection for the tax year; or
(c) is an individual and the services are performed otherwise than for the client's business (s.50(5));
(3) The contract is not directly between the worker and the client but, instead, under arrangements involving a third party (the intermediary).
(3a) The conditions in relation to the intermediary are satisfied (see s.50(1), s.51, s.52, s.53).
- Company - s.61O.
- Partnership - worker is member, providing the services as a member + s.61P.
- Individual - any individual.
(4) Either:
(a) If the services were provided under a direct contract with the client, the worker would be an employee or office holder; or
(b) the worker is an officer holder of the client and the services relate to the office.
- except a statutory auditor (s.49(4A)).
(5) The worker or an associate of the worker either (s.50(1)(b)):
(i) receives from the intermediary a payment or benefit that is not employment income; or
(ii) has rights which do or could entitled the worker/associate to receive such a payment or benefit
- Then: the intermediary is treated as making to the worker a payment which is earnings from an employment (s.50(1)).
Quantum of deemed payment
Timing of deemed payment
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Medium and large clients (including non-companies), public authorities (Ch.10)
- Clients without UK connection
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- Deemed payment of employment income by chain participant to worker
General rule
- If (ITEPA s.61M):
(1) An individual (the worker) personally performs services for another person (the client)
- Or is under an obligation personally to perform services
(2) The contract is not directly between the worker and the client but, instead, under arrangements involving a third party (the intermediary).
(2a) The conditions in relation to the intermediary are satisfied (see s.61N(1), (9), (10), (11)).
- Company - s.61O.
- Partnership - worker is member, providing the services as a member + s.61P.
- Individual - any individual.
(3) The client is a public authority or a qualifying medium or large client.
(4) Either:
(a) If the services were provided under a direct contract with the client, the worker would be an employee or office holder; or
(b) the worker is an officer holder of the client and the services relate to the office.
- except a statutory auditor (s.61M(4)).
- Then: the 'fee-payer' or client (see below) is treated as making to the worker a deemed direct payment of earnings from employment (s.61N(3)).
Public authority
- Defined in s.61L.
- Applies irrespective of the size of the public authority.
Qualifying medium or large client
- Client is medium or large if it is not small (s.61K(3)).
- Client is small if - see ss.60A to s.60G.
- To qualify, the client must also have a UK connection.
- Query whether the reference to "for one or more tax years" of the arrangement applies to both the size and the UK connection (s.61M(ca)(ii)).
- But note, that deemed payments only arise in years when the client is medium/large and has a UK connection (s.61N(8A)).
Exclusion for certain individuals who are client
- The rules do not apply if the client is an individual and the services are provided otherwise than for the purposes of the client's trade or business (s.61M(1A)).
Fee-payer or client treated as making payment
- Broadly, the rules (in s.61N) seek to treat the person who is immediately above the intermediary in the chain as the person making the payment of employment income.
- the chain is a chain of persons making payments that can reasonably be taken to be for the worker's services to the client (s.61N(1), (2)).
- But there are rules to disregard persons in the chain below the client if they are:
- Non-UK resident and do not have a place of business in the UK; or
- are controlled by the worker/associates; or
- are companies in which the worker/associates have a material interest.
- Equally, unless and until the client gives a 'status' determination to the worker, the client will be treated as making the payment (s.61N(5)).
- Status determination statement is a statement that condition 4, above does/does not apply (s.61NA).
- Not a statues determination statement unless reasonable care taken (s.61NA(2)).
- If there is no one in the chain between the client and the intermediary, the client is treated as making the payment (s.61N(6)).
Timing of deemed payment
- At the time of the chain payment by the deemed payer (s.61N(4)).
Quantum of deemed payment
- Quantum is the amount/value of chain payment made by the deemed payer (net of VAT) (s.61Q(1)).
- Deduct amounts representing the intermediary's materials costs (step 2).
- Deduct amounts representing expenses met by the intermediary that would be deductible for an employee (step 3 - optional).
- Ignore amounts treated as employment income under the salaried members rules (s.61Q(2)).
- Apportion where the payment is reasonable for the worker's services and anything else (s.61N(12)).
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TRADING INCOME
Services provided through intermediary
- Intermediary treated as making employment payment entitled to deduction (Ch.8)
Income tax intermediary
- Where an intermediary is treated as making a deemed employment payment under ITEPA s.50 in connection with a trade (profession or vocation), the intermediary is entitled to a deduction in calculating trading profits (ITTOIA s.163; CTA 2009, s.139).
- Amount of deduction:
- the amount of the deemed employment payment +
- the amount of employer's NICs paid by the intermediary in respect of it.
- Timing of deduction
- the period of account in which the deemed employment payment is treated as made.
Partnership treated as making deemed payment
- Deduction under ITTOIA s.163 is limited to amount that reduces profits of the firm for the tax year to nil (ITTOIA s.164(2); CTA 2009, s.140(2)).
- Expenses of firm in connection with the relevant engagements for any period of account are limited by s.164(3), s.140(3).
Legislation: ITTOIA s.163, s.164; CTA 2009, s.139, s.140;
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- Intermediary in chain whether another is deemed to make employment payment entitled to disregard fee received (Ch.10)
- Where:
(1) A person is the intermediary in a chain for the purposes of ITEPA s.61N;
(2) Someone in that chain is deemed to have made a direct payment of employment income under s.61N(3); and
(3) The intermediary receives a payment which is in respect of the same services as those which gave rise to the deemed direct payment;
- Then: the intermediary can disregard the payment it received in respect of those services (ITTOIA s.164B; CTA 2009, s.141A).
- Note: it is not the person who is treated as making the deemed payment of employment income who gets the relief, it is the intermediary.
- Logically, the person treated as making the payment is higher up in the chain and will already have a corresponding expense.
Legislation: ITTOIA s.164B; CTA 2009, s.141A;
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