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HMRC internal manual

Employment Status Manual

Basic principles: how to work out when the legislation applies - example

This section provides an example of a situation in which the intermediaries legislation would apply.

Mr A is a computer programmer. He negotiates a contract with the information technology department of a large financial institution, Client plc. Under this contract, which will last for 12 months starting on 1 May 2000, he is engaged on terms and conditions that would make him an employee of the financial institution if taken on directly. However, having negotiated the terms of the contract, the agreement for the supply of Mr A’s services is made between Client plc and Mr A’s company, A Services Ltd, in which he owns all of the shares. There is no contract between Mr A and Client plc.

All of the income from the contract with the financial institution will be covered by the intermediaries legislation.

  • Mr A (the worker) is under an obligation to personally perform services for the purposes of a business carried on by another person, Client plc (the client)
  • the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party, A Services Ltd (the intermediary)
  • if the services had been provided under a contract directly between Mr A and Client plc, he would be regarded as an employee of the client for tax and NICs purposes
  • the work done under the contract starts after 6 April 2000.In addition:

  • Mr A owns shares in the intermediary and is entitled to receive dividends from the company. He therefore has rights entitling him to receive a payment from the intermediary that is not chargeable to tax under Schedule E/is not employment income
  • Mr A owns all of the shares in the intermediary. He therefore has a material interest in the intermediary and thus the conditions of liability where the intermediary is a company are satisfied (see ESM3105).Therefore a deemed payment will be treated as paid.