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HMRC internal manual

Employment Status Manual

From
HM Revenue & Customs
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Basic principles: when the legislation applies

Paragraphs 1 and 2 Schedule 12 Finance Act 2000/Sections 49 and 50 ITEPA 2003

Regulation 6 SI 2000 No.727

The legislation applies where a worker provides services to a client under arrangements involving an intermediary in circumstances such that if the contract had been made directly then the worker would have been

  • for income tax purposes, an employee of the client
  • for NICs purposes, employed in employed earner’s employment by the client.

The main conditions for the legislation to apply are:

  • a worker provides his or her services to a third party (known as the client). The tax legislation required the services to be performed for the purposes of that client’s business in relation to periods before 10th April 2003. The NICs legislation required the services to be performed for the purposes of that client’s business but in relation to periods before 1s t September 2003. See ESM3040 for more details about this change to the legislation.
  • the arrangements for these services are not made directly with the client but through a third party (known as an intermediary)
  • if the services had been provided under a contract between the client and the worker, the worker would have been regarded as an employee/employed earner of the client. For NICs purposes, see ESM3130 onwards regarding situations where the client is overseas.
  • the services are performed on or after 6 April 2000
  • the worker, or an associate of the worker, receives or is entitled to receive a payment or other benefit from the intermediary that is not chargeable to tax as employment income, and
  • the conditions of liability are satisfied according to the type of intermediary (see ESM3100 onwards).

This section describes the situation where an individual uses an intermediary such as a service company to supply his or her services to a third party. The individual would have been an employee of the third party if engaged directly, but gets around this by interposing an inter-company contract into the relationship.