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HMRC internal manual

Employment Status Manual

Employment intermediaries’ travel expense provisions: supervision, direction or control

Income Tax (Earnings and Pensions) Act 2003 (ITEPA), Part 5, Chapter 2, sections 337 to 339A and Chapter 3, Part 11, section 688B

Income Tax (Pay As You Earn) Regulations 2003, Part 4, Chapter 3B

Social Security (Contributions) Regulations 2001,  Schedule 3, Part 8, paragraphs 3, 3ZA & 3ZB

For the employment intermediaries travel expense provisions to apply both the basic conditions must be met [ESM5530]. However, even where those conditions are met, the employment intermediaries travel expense provisions don’t apply if it can be shown that the manner in which the worker provides the services isn’t subject to (or to the right of) supervision, direction or control (SDC) by any person.

The basic assumption is that, unless it is shown otherwise, all workers are under SDC in the manner in which they provide their services (in general, this is how an individual carries out the duties of their role).

SDC doesn’t have to be actually exercised in practice. The test is also met if a person has the right to supervise, direct or control the worker.

Determining if SDC applies

The worker can be subject to (or to the right of) SDC by anyone including:

  • the client or its subsidiary
  • an employment business, agency or other employment intermediary
  • independent consultants, site managers and project managers

 

Where there are procedures, methods and instructions which must be followed (written, verbal or implied), then it is likely there will be SDC over the manner in which the services are provided.

However, simply being required to comply with statutory requirements like health and safety procedures isn’t determinative, as all workers must comply with these.

HMRC’s view

HMRC will consider the worker’s arrangements overall when determining if SDC  applies including the terms of the engagement and the way the work is actually done in practice. It will not be sufficient that the terms of a contract imply a lack of SDC if the reality is otherwise.

Modification for intermediaries within the scope of the intermediaries legislation

A modification [ESM5580] applies when an employment intermediary is within the scope of the intermediaries legislation and certain conditions are met. [ESM3000]. Where the modification applies, whether a worker is subject to SDC is not considered. HMRC considers that this modification can apply when a worker provides their personal services via a PSC and for NICs purposes only in circumstances involving other intermediaries, such as an umbrella company, for the period 6 April 2016 to 5 July 2016.

However, this modification is not applicable if a worker provides their personal services through an employment intermediary which is:

  • an MSC within the meaning given by section 61B ITEPA, or
  • would be such a company if all the worker’s income was not employment income, specifically disregarding ITEPA, section 61B(1)(c) [ESM5570].

 

In these circumstances, SDC must always be considered along with the basic conditions [ESM5530] and regardless of whether or not the employment intermediary is also required to consider the intermediaries legislation.

Special provisions relating to fraudulent documents and transfer of debt provisions

Special provisions apply where fraudulent documents have been provided to an employment intermediary purporting to show that a worker isn’t subject to (or to the right of) SDC [ESM5650] resulting in unpaid tax.

Transfer of debt provisions can apply to unpaid tax debt in certain circumstances when the employment intermediaries travel expense provisions haven’t been applied correctly and a company hasn’t been provided with evidence from which it would be reasonable in all the circumstances to conclude that the worker wasn’t subject to (or the right of) SDC of any person [ESM5660].

For these purposes, the mere assertion by a person that the manner in which the worker provided the services was not subject to (or to the right of) SDC of any person is not such evidence.