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Income Tax (Earnings and Pensions) Bill


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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            Step 5

            Deduct any contributions made in the year for the benefit of the worker by the

intermediary to a scheme approved under Chapter 1 or 4 of Part 14 of ICTA

that if made by an employer for the benefit of an employee would not be

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chargeable to income tax as income of the employee.

            This does not apply to excess contributions made and later repaid.

            

                   Step 6

                   Deduct the amount of any employer’s national insurance contributions paid by

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the intermediary for the year in respect of the worker.

            

            Step 7

            Deduct the amount of any payments and benefits received in the year by the

worker from the intermediary—

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           (a)           in respect of which the worker is chargeable to income tax as

employment income, and

           (b)           which do not represent items in respect of which a deduction was made

under step 3.

            

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            Step 8

            Assume that the result of step 7 represents an amount together with

employer’s national insurance contributions on it, and deduct what (on that

assumption) would be the amount of those contributions.

            

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            The result is the deemed employment payment.

     (2)    If section 559 of ICTA applies (sub-contractors in the construction industry:

payments to be made under deduction), the intermediary is treated for the

purposes of step 1 of subsection (1) as receiving the amount that would have

been received had no deduction been made under that section.

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     (3)    In step 3 of subsection (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

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partnership.

     (4)    In step 3 of subsection (1), the expenses deductible include the amount of any

mileage allowance relief for the year which the worker would have been

entitled to in respect of the use of a vehicle falling within subsection (5) if—

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

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           (b)           the vehicle had not been a company vehicle (within the meaning of

Chapter 2 of Part 4).

     (5)    A vehicle falls within this subsection if—

           (a)           it is provided by the intermediary for the worker, or

           (b)           where the intermediary is a partnership and the worker is a member of

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the partnership, it is provided by the worker for the purposes of the

business of the partnership.

 

 

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

    29

 

     (6)    Where, on the assumptions mentioned in paragraphs (a) and (b) of step 3 of

subsection (1), the deductibility of the expenses is determined under sections

337 to 342 (travel expenses), the duties performed under the relevant

engagements are treated as duties of a continuous employment with the

intermediary.

5

     (7)    In step 7 of subsection (1), the amounts deductible include any payments

received in the year from the intermediary that—

           (a)           are exempt from income tax by virtue section 229 or 233 (mileage

allowance payments and passenger payments), and

           (b)           do not represent items in respect of which a deduction was made under

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step 3.

     (8)    For the purposes of subsection (1) any necessary apportionment is to be made

on a just and reasonable basis of amounts received by the intermediary that are

referable—

           (a)           to the services of more than one worker, or

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           (b)           partly to the services of the worker and partly to other matters.

 55    Application of rules relating to earnings from employment

     (1)    The following provisions apply in relation to the calculation of the deemed

employment payment.

     (2)    A “payment or benefit” means anything that, if received by an employee for

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performing the duties of an employment, would be earnings from the

employment.

     (3)    The amount of a payment or benefit is taken to be—

           (a)           in the case of a payment or cash benefit, the amount received, and

           (b)           in the case of a non-cash benefit, the cash equivalent of the benefit.

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     (4)    The cash equivalent of a non-cash benefit is taken to be—

           (a)           the amount that would be earnings if the benefit were earnings from an

employment, or

           (b)           in the case of living accommodation, whichever is the greater of that

amount and the cash equivalent determined in accordance with section

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398(2).

     (5)    A payment or benefit is treated as received—

           (a)           in the case of a payment or cash benefit, when payment is made of or

on account of the payment or benefit;

           (b)           in the case of a non-cash benefit that is calculated by reference to a

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period within the tax year, at the end of that period,

           (c)           in the case of a non-cash benefit that is not so calculated, when it would

have been treated as received for the purposes of Chapter 4 or 5 of this

Part (see section 19 or 32) if—

                  (i)                 the worker had been an employee, and

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                  (ii)                the benefit had been provided by reason of the employment.

 56    Application of Income Tax Acts in relation to deemed employment

     (1)    The Income Tax Acts (in particular, the PAYE provisions) apply in relation to

the deemed employment payment as follows.

 

 

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

    30

 

     (2)    They apply as if—

           (a)           the worker were employed by the intermediary, and

           (b)           the relevant engagements were undertaken by the worker in the course

of performing the duties of that employment.

     (3)    The deemed employment payment is treated in particular—

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           (a)           as taxable earnings from the employment for the purpose of securing

that any deductions under Chapters 2 to 6 of Part 5 do not exceed the

deemed employment payment; and

           (b)           as taxable earnings from the employment for the purposes of section

232.

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     (4)    The worker is not chargeable to tax in respect of the deemed employment

payment if, or to the extent that, by reason of any combination of the factors

mentioned in subsection (5), the worker would not be chargeable to tax if—

           (a)           the client employed the worker,

           (b)           the worker performed the services in the course of that employment,

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and

           (c)           the deemed employment payment were a payment by the client of

earnings from that employment.

     (5)    The factors are—

           (a)           the worker being resident, ordinarily resident or domiciled outside the

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United Kingdom,

           (b)           the client being resident or ordinarily resident outside the United

Kingdom, and

           (c)           the services in question being provided outside the United Kingdom.

     (6)    Where the intermediary is a partnership or unincorporated association, the

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deemed employment payment is treated as received by the worker in the

worker’s personal capacity and not as income of the partnership or association.

     (7)    Where—

           (a)           the worker is resident in the United Kingdom,

           (b)           the services in question are provided in the United Kingdom, and

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           (c)           the client or employer carries on business in the United Kingdom,

                   the intermediary is treated as having a place of business in the United

Kingdom, whether or not it in fact does so.

     (8)    The deemed employment payment is treated as relevant earnings of the

worker for the purposes of section 644 of ICTA (relevant earnings for purposes

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of permissible pension contributions).

Supplementary provisions

 57    Earlier date of deemed employment payment in certain cases

     (1)    If in any tax year—

           (a)           a deemed employment payment is treated as made, and

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           (b)           before the date on which the payment would be treated as made under

section 50(2) any relevant event (as defined below) occurs in relation to

the intermediary,

 

 

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

    31

 

                   the deemed employment payment for that year is treated as having been made

immediately before that event or, if there is more than one, immediately before

the first of them.

     (2)    Where the intermediary is a company the following are relevant events—

           (a)           the company ceasing to trade;

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           (b)           where the worker is a member of the company, the worker ceasing to

be such a member;

           (c)           where the worker holds an office with the company, the worker ceasing

to hold such an office;

           (d)           where the worker is employed by the company, the worker ceasing to

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be so employed.

     (3)    Where the intermediary is a partnership the following are relevant events—

           (a)           the dissolution of the partnership or the partnership ceasing to trade or

a partner ceasing to act as such;

           (b)           where the worker is employed by the partnership, the worker ceasing

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to be so employed.

     (4)    Where the intermediary is an individual and the worker is employed by the

intermediary, it is a relevant event if the worker ceases to be so employed.

     (5)    The fact that the deemed employment payment is treated as made before the

end of the tax year does not affect what receipts and other matters are taken

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into account in calculating its amount.

 58    Relief in case of distributions by intermediary

     (1)    A claim for relief may be made under this section where the intermediary—

           (a)           is a company,

           (b)           is treated as making a deemed employment payment in any tax year,

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and

           (c)           either in that tax year (whether before or after that payment is treated

as made), or in a subsequent tax year, makes a distribution (a “relevant

distribution”).

     (2)    A claim for relief under this section must be made—

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           (a)           by the intermediary by notice to the Inland Revenue, and

           (b)           within 5 years after the 31st January following the tax year in which the

distribution is made.

     (3)    If on a claim being made the Inland Revenue are satisfied that relief should be

given in order to avoid a double charge to tax, they must direct the giving of

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such relief by way of amending any assessment, by discharge or repayment of

tax, or otherwise, as appears to them appropriate

     (4)    Relief under this section is given by setting the amount of the deemed

employment payment against the relevant distribution so as to reduce the

distribution.

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     (5)    In the case of more than one relevant distribution, the Inland Revenue must

exercise the power conferred by this section so as to secure that so far as

practicable relief is given by setting the amount of a deemed employment

payment—

           (a)           against relevant distributions of the same tax year before those of other

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years,

 

 

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

    32

 

           (b)           against relevant distributions received by the worker before those

received by another person, and

           (c)           against relevant distributions of earlier years before those of later years.

     (6)    Where the amount of a relevant distribution is reduced under this section, the

amount of any associated tax credit is reduced accordingly.

5

 59    Provisions applicable to multiple intermediaries

     (1)    The provisions of this section apply where in the case of an engagement to

which this Chapter applies the arrangements involve more than one relevant

intermediary.

     (2)    All relevant intermediaries in relation to the engagement are jointly and

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severally liable, subject to subsection (3), to account for any amount required

under the PAYE provisions to be deducted from a deemed employment

payment treated as made by any of them—

           (a)           in respect of that engagement, or

           (b)           in respect of that engagement together with other engagements.

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     (3)    An intermediary is not so liable if it has not received any payment or benefit in

respect of that engagement or any such other engagement as is mentioned in

subsection (2)(b).

     (4)    Subsection (5) applies where a payment or benefit has been made or provided,

directly or indirectly, from one relevant intermediary to another in respect of

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the engagement.

     (5)    In that case, the amount taken into account in relation to any intermediary in

step 1 or step 2 of section 54(1) is reduced to such extent as is necessary to avoid

double-counting having regard to the amount so taken into account in relation

to any other intermediary.

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     (6)    Except as provided by subsections (2) to (5), the provisions of this Chapter

apply separately in relation to each relevant intermediary

     (7)    In this section “relevant intermediary” means an intermediary in relation to

which the conditions specified in section 51, 52 or 53 are met.

 60    Meaning of “associate”

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     (1)    In this Chapter “associate”—

           (a)           in relation to an individual, has the meaning given by section 417(3)

and (4) of ICTA, subject to the following provisions of this section;

           (b)           in relation to a company, means a person connected with the company;

and

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           (c)           in relation to a partnership, means any associate of a member of the

partnership.

     (2)    Where an individual has an interest in shares or obligations of the company as

a beneficiary of an employee benefit trust, the trustees are not regarded as

associates of the individual by reason only of that interest except in the

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following circumstances.

     (3)    The exception is where—

           (a)           the individual, either alone or with any one or more associates of the

individual, or

 

 

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

    33

 

           (b)           any associate of the individual, with or without other such associates,

                   has at any time on or after 14th March 1989 been the beneficial owner of, or able

(directly or through the medium of other companies or by any other indirect

means) to control more than 5% of the ordinary share capital of the company.

     (4)    In subsection (3) “associate” does not include the trustees of an employee

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benefit trust as a result only of the individual’s having an interest in shares or

obligations of the trust.

     (5)    Sections 549 to 554 (attribution of interests in companies to beneficiaries of

employee benefit trusts) apply for the purposes of subsection (3) as they apply

for the purposes of the provisions listed in section 549(2).

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     (6)    In this section “employee benefit trust” has the meaning given by sections 550

and 551.

 61    Interpretation

     (1)    In this Chapter—

                    “associate” has the meaning given by section 60;

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                    “associated company” has the meaning given by section 416 of ICTA;

                    “business” means any trade, profession or vocation and includes a

Schedule A business;

                    “company” means a body corporate or unincorporated association, and

does not include a partnership;

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                    “employer’s national insurance contributions” means secondary Class 1

or Class 1A national insurance contributions;

                    “engagement to which this Chapter applies” has the meaning given by

section 49(5);

                    “national insurance contributions” means contributions under Part 1 of

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SSCBA 1992 or Part 1 of SSCB(NI)A 1992;

                    “PAYE provisions” means the provisions of Part 11 or PAYE regulations;

                    “the relevant engagements” has the meaning given by section 50(4).

     (2)    References in this Chapter to payments or benefits received or receivable from

a partnership or unincorporated association include payments or benefits to

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which a person is or may be entitled in the person’s capacity as a member of

the partnership or association.

     (3)    For the purposes of this Chapter—

           (a)           anything done by or in relation to an associate of an intermediary is

treated as done by or in relation to the intermediary, and

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           (b)           a payment or other benefit provided to a member of an individual’s

family or household is treated as provided to the individual.

     (4)    For the purposes of this Chapter a man and a woman living together as

husband and wife are treated as if they were married to each other.

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 2 — Taxable benefits: the benefits code

    34

 

Part 3

Employment income: earnings and benefits etc. treated as earnings

Chapter 1

Earnings

 62    Earnings

5

     (1)    This section explains what is meant by “earnings” in the employment income

Parts.

     (2)    In those Parts “earnings”, in relation to an employment, means—

           (a)           any salary, wages or fee,

           (b)           any gratuity or other profit or incidental benefit of any kind obtained

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by the employee if it is money or money’s worth, or

           (c)           anything else that constitutes an emolument of the employment.

     (3)    For the purposes of subsection (2) “money’s worth” means something that is—

           (a)           of direct monetary value to the employee, or

           (b)           capable of being converted into money or something of direct monetary

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value to the employee.

     (4)    Subsection (1) does not affect the operation of statutory provisions that provide

for amounts to be treated as earnings (and see section 721(7)).

Chapter 2

Taxable benefits: the benefits code

20

The benefits code

 63    The benefits code

     (1)    In the employment income Parts “the benefits code” means—

                    this Chapter,

                    Chapter 3 (expenses payments),

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                    Chapter 4 (vouchers and credit-tokens),

                    Chapter 5 (living accommodation),

                    Chapter 6 (cars, vans and related benefits),

                    Chapter 7 (loans),

                    Chapter 8 (notional loans in respect of acquisitions of shares),

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                    Chapter 9 (disposals of shares for more than market value),

                    Chapter 10 (residual liability to charge), and

                    Chapter 11 (exclusion of lower-paid employments from parts of benefits

code).

     (2)    If an employment is an excluded employment, the general effect of section

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216(1) (provisions not applicable to lower-paid employments) is that only the

following Chapters apply to the employment—

                    this Chapter,

 

 

 
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