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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

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           (a)           on a voyage or journey beginning or ending in the United Kingdom, or

           (b)           on a part beginning or ending in the United Kingdom of any other

voyage or journey,

            are to be treated as performed in the United Kingdom for the purposes of this

Chapter.

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     (3)    Subsection (2) does not, however, apply for the purposes of section 24(1)(b)

(limit on chargeable overseas earnings under section 23 where duties of

associated employment performed in UK) in relation to any duties of a

person’s employment if—

           (a)            the employment is as a seafarer, and

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           (b)            the duties are performed on a ship.

     (4)    Instead, any duties of the employment which are performed on a ship

engaged—

           (a)           on a voyage beginning or ending outside the United Kingdom (but

excluding any part of it beginning and ending there), or

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           (b)           on a part beginning or ending outside the United Kingdom of any other

voyage,

            are to be treated as performed outside the United Kingdom for the purposes of

section 24(1)(b).

     (5)    For the purposes of subsections (3) and (4)—

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           (a)           employment “as a seafarer” means an employment consisting of the

performance of duties on a ship or of such duties and others incidental

to them;

           (b)           “ship” does not include—

                  (i)                 any offshore installation within the meaning of the Mineral

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Workings (Offshore Installations) Act 1971 (c. 61), or

                  (ii)                what would be such an installation if the references in that Act

to controlled waters were to any waters;

           (c)           the areas designated under section 1(7) of the Continental Shelf Act

1964 (c. 29) are treated as part of the United Kingdom.

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 41    Employment in UK sector of continental shelf

     (1)    General earnings in respect of duties performed in the UK sector of the

continental shelf in connection with exploration or exploitation activities are to

be treated for the purposes of this Chapter as general earnings in respect of

duties performed in the United Kingdom.

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     (2)    In this section—

                    “the UK sector of the continental shelf” means the areas designated under

section 1(7) of the Continental Shelf Act 1964, and

                    “exploration or exploitation activities” means activities carried on in

connection with the exploration or exploitation of so much of the

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seabed and subsoil and their natural resources as is situated in the

United Kingdom or the UK sector of the continental shelf.

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 6 — Disputes as to domicile or ordinary residence

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Chapter 6

Disputes as to domicile or ordinary residence

 42    Board to determine dispute as to domicile or ordinary residence

     (1)    This section applies if, in connection with any of the provisions listed in

subsection (3), there is a dispute as to whether a person is or has been

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ordinarily resident or domiciled in the United Kingdom.

     (2)    The question whether the person is or has been so resident or domiciled is to

be referred to and decided by the Board of Inland Revenue.

     (3)    The provisions referred to in subsection (1) are—

                    section 15 (earnings for year when employee resident, ordinarily resident

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and domiciled in UK);

                    section 21 (earnings for year when employee resident and ordinarily

resident, but not domiciled, in UK, except chargeable overseas

earnings);

                    section 22 (chargeable overseas earnings for year when employee resident

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and ordinarily resident, but not domiciled, in UK);

                    section 23 (calculation of “chargeable overseas earnings”);

                    section 25 (UK-based earnings for year when employee resident, but not

ordinarily resident, in UK);

                    section 26 (foreign earnings for year when employee resident, but not

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ordinarily resident, in UK);

                    section 341 (deduction for travel expenses at start or finish of overseas

employment);

                    section 342 (deduction for travel expenses between employments where

duties performed abroad);

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                    section 355 (deduction for corresponding payments by non-domiciled

employees with foreign employers);

                    section 376 (deduction for foreign accommodation and subsistence costs

etc. where overseas employment);

                    section 390 (exception for payments to non-approved pension schemes if

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non-domiciled employees with foreign employers).

 43    Appeal against Board’s decision on domicile or ordinary residence

     (1)    A person who has been given notice of the Board’s decision on a question

under section 42 may, if aggrieved by that decision, appeal to the Special

Commissioners.

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     (2)    The notice of appeal must be given to the Board within 3 months after the date

on which the person is given notice of the Board’s decision.

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 7 — Application of provisions to agency workers

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Chapter 7

Application of provisions to agency workers

Agency workers

 44    Treatment of workers supplied by agencies

     (1)    This section applies if—

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           (a)           an individual (“the worker”) personally provides, or is under an

obligation personally to provide, services (which are not excluded

services) to another person (“the client”),

           (b)           the services are supplied by or through a third person (“the agency”)

under the terms of an agency contract,

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           (c)           the worker is subject to (or to the right of) supervision, direction or

control as to the manner in which the services are provided, and

           (d)           remuneration receivable under or in consequence of the agency

contract does not constitute employment income of the worker apart

from this Chapter.

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     (2)    If this section applies—

           (a)           the services which the worker provides, or is obliged to provide, to the

client under the agency contract are to be treated for income tax

purposes as duties of an employment held by the worker with the

agency, and

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           (b)           all remuneration receivable under or in consequence of the agency

contract (including remuneration which the client pays or provides in

relation to the services) is to be treated for income tax purposes as

earnings from that employment.

 45    Arrangements with agencies

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If—

           (a)           an individual (“the worker”), with a view to personally providing

services (which are not excluded services) to another person (“the

client”), enters into arrangements with a third person (“the agency”),

and

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           (b)           the arrangements are such that the services (if and when they are

provided) will be treated for income tax purposes under section 44 as

duties of an employment held by the worker with the agency,

            any remuneration receivable under or in consequence of the arrangements is

to be treated for income tax purposes as earnings from that employment.

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 46    Cases involving unincorporated bodies etc.

     (1)    Section 44 also applies—

           (a)           if the worker personally provides, or is under an obligation to

personally provide, the services in question as a partner in a firm or a

member of an unincorporated body, and

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           (b)           if the agency in question is an unincorporated body of which the

worker is a member.

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 8 — Application of provisions to workers under arrangements made by intermediaries

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     (2)    In a case within subsection (1)(a), remuneration receivable under or in

consequence of the agency contract is to be treated for income tax purposes as

income of the worker and not as income of the firm or body.

Supplementary

 47    Interpretation of this Chapter

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     (1)    In this Chapter “agency contract” means a contract made between the worker

and the agency under the terms of which the worker is obliged to personally

provide services to the client.

     (2)    In this Chapter “excluded services” means—

           (a)           services as an actor, singer, musician or other entertainer or as a

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fashion, photographic or artist’s model, or

           (b)           services provided wholly—

                  (i)                 in the worker’s own home, or

                  (ii)                at other premises which are neither controlled or managed by

the client nor prescribed by the nature of the services.

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     (3)    For the purposes of this Chapter “remuneration”—

           (a)           does not include anything that would not have constituted

employment income of the worker if it had been receivable in

connection with an employment apart from this Chapter, but

           (b)           subject to paragraph (a), includes every form of payment, gratuity,

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profit and benefit.

Chapter 8

Application of provisions to workers under arrangements made by

intermediaries

Application of this Chapter

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 48    Scope of this Chapter

     (1)    This Chapter has effect with respect to the provision of services through an

intermediary.

     (2)    Nothing in this Chapter—

           (a)           affects the operation of Chapter 7 of this Part, or

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           (b)           applies to payments subject to deduction of tax under section 555 of

ICTA (payments to non-resident entertainers and sportsmen).

 49    Engagements to which this Chapter applies

     (1)    This Chapter applies where—

           (a)           an individual (“the worker”) personally performs, or is under an

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obligation personally to perform, services for the purposes of a

business carried on by another person (“the client”),

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 8 — Application of provisions to workers under arrangements made by intermediaries

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           (b)           the services are provided not under a contract directly between the

client and the worker but under arrangements involving a third party

(“the intermediary”), and

           (c)           the circumstances are such that, if the services were provided under a

contract directly between the client and the worker, the worker would

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be regarded for income tax purposes as an employee of the client.

     (2)    In subsection (1)(a) “business” includes any activity carried on—

           (a)           by a government or public or local authority (in the United Kingdom or

elsewhere), or

           (b)           by a body corporate, unincorporated body or partnership.

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     (3)    The reference in subsection (1)(b) to a “third party” includes a partnership or

unincorporated body of which the worker is a member.

     (4)    The circumstances referred to in subsection (1)(c) include 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.

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     (5)    In this Chapter “engagement to which this Chapter applies” means any such

provision of services as is mentioned in subsection (1).

 50    Worker treated as receiving earnings from employment

     (1)    If, in the case of an engagement to which this Chapter applies, in any tax year—

           (a)           the conditions specified in section 51, 52 or 53 are met in relation to the

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intermediary, and

           (b)           the worker, or an associate of the worker—

                  (i)                 receives from the intermediary, directly or indirectly, a

payment or benefit that is not employment income, or

                  (ii)                has rights which entitle, or which in any circumstances would

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entitle, the worker or associate to receive from the intermediary,

directly or indirectly, any such payment or benefit,

                   the intermediary is treated as making to the worker, and the worker is treated

as receiving, in that year a payment which is to be treated as earnings from an

employment (“the deemed employment payment”).

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     (2)    A single payment is treated as made in respect of all engagements in relation

to which the intermediary is treated as making a payment to the worker in the

tax year.

     (3)    The deemed employment payment is treated as made at the end of the tax year,

unless section 57 applies (earlier date of deemed payment in certain cases).

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     (4)    In this Chapter “the relevant engagements”, in relation to a deemed

employment payment, means the engagements mentioned in subsection (2).

 51    Conditions of liability where intermediary is a company

     (1)    Where the intermediary is a company the conditions are that the intermediary

is not an associated company of the client that falls within subsection (2) and

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either—

           (a)           the worker has a material interest in the intermediary, or

           (b)           the payment or benefit mentioned in section 50(1)(b)—

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 8 — Application of provisions to workers under arrangements made by intermediaries

    26

 

                  (i)                 is received or receivable by the worker directly from the

intermediary, and

                  (ii)                can reasonably be taken to represent remuneration for services

provided by the worker to the client.

     (2)    An associated company of the client falls within this subsection if it is such a

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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)    A worker is treated as having a material interest in a company if—

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

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

                   has a material interest in the company.

     (4)    For this purpose a material interest means—

           (a)           beneficial ownership of, or the ability to control, directly or through the

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medium of other companies or by any other indirect means, more than

5% of the ordinary share capital of the company; or

           (b)           possession of, or entitlement to acquire, rights entitling the holder to

receive more than 5% of any distributions that may be made by the

company; or

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           (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

more than 5% of the assets that would then be available for distribution

among the participators.

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     (5)    In subsection (4)(c) “participator” has the meaning given by section 417(1) of

ICTA.

 52    Conditions of liability where intermediary is a partnership

     (1)    Where the intermediary is a partnership the conditions are as follows.

     (2)    In relation to any payment or benefit received or receivable by the worker as a

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member of the partnership the conditions are—

           (a)           that the worker, alone or with one or more relatives, is entitled to 60%

or more of the profits of the partnership; or

           (b)           that most of the profits of the partnership concerned derive from the

provision of services under engagements to which this Chapter

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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

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the provision of services under engagements to which this Chapter

applies.

                   In paragraph (a) “relative” means husband or wife, parent or child or remoter

relation in the direct line, or brother or sister.

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 8 — Application of provisions to workers under arrangements made by intermediaries

    27

 

     (3)    In relation to any payment or benefit received or receivable by the worker

otherwise than as a member of the partnership, the conditions are that the

payment or benefit—

           (a)           is received or receivable by the worker directly from the intermediary,

and

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           (b)           can reasonably be taken to represent remuneration for services

provided by the worker to the client.

 53    Conditions of liability where intermediary is an individual

Where the intermediary is an individual the conditions are that the payment or

benefit—

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           (a)           is received or receivable by the worker directly from the intermediary,

and

           (b)           can reasonably be taken to represent remuneration for services

provided by the worker to the client.

The deemed employment payment

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 54    Calculation of deemed employment payment

     (1)    The amount of the deemed employment payment for a tax year (“the year”) is

the amount resulting from the following steps:

            

            Step 1

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            Find (applying section 55) the total amount of all payments and benefits

received by the intermediary in the year in respect of the relevant

engagements, and reduce that amount by 5%.

            

                   Step 2

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            Add (applying that section) the amount of any payments and benefits received

by the worker in the year in respect of the relevant engagements, otherwise

than from the intermediary, that—

           (a)           are not chargeable to income tax as employment income, and

           (b)           would be so chargeable if the worker were employed by the client.

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            Step 3

                   Deduct (applying Chapters 1 to 5 of Part 5) the amount of any expenses met in

the year by the intermediary that would have been deductible from the taxable

earnings from the employment if—

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

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

            

                   If the result at this or any later point is nil or a negative amount, there is no

deemed employment payment.

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            Step 4

            Deduct the amount of any capital allowances in respect of expenditure

incurred by the intermediary that could have been deducted from employment

income under section 262 of CAA 2001 (employments and offices) if the worker

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had been employed by the client and had incurred the expenditure.

 

 

 
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Revised 17 February 2003