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HMRC internal manual

Employment Status Manual

Employment intermediaries travel expense provisions: employment intermediaries within the scope of the managed service companies (MSCs) legislation, Chapter 9 ITEPA

Income Tax (Earnings and Pensions) Act 2003, Part 2 Chapter 9, section 61A - 61J

Social Security Contributions (Managed Service Companies) Regulations 2007

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

Where workers personally provide their services through a company the employment intermediaries travel expense provisions apply without modification where:

  1. the employment intermediary is an MSC (within the meaning of ITEPA, section 61B) or

  2. would be such a company disregarding section 61B(1)(c) of ITEPA (So if all the conditions in section 61B(1) are satisfied except section 61B(1)(c) then the employment intermediaries travel expense provisions may apply.).

For guidance about section 61B(1)(c) ITEPA - [ESM3500].

In these cases, SDC must always be considered so that for the purposes of the employment intermediaries travel expense provisions the:

  • basic conditions [ESM5530] and the SDC provisions [ESM5560] must be considered
  • modification for employment intermediaries within the scope of the Intermediaries legislation  [ESM5580] does not apply, this is regardless of whether the intermediary at (1) or (2) above is also required to consider the intermediaries legislation

 

Transfer of liability

When an employment intermediary is an MSC, or would be such a company disregarding section 61B(1)(c) of ITEPA, and:

  • fails to apply the employment intermediaries travel expense provisions relating to SDC correctly, and
  • doesn’t have reasonable evidence from any other person in connection with that test, and
  • doesn’t apply section 339A of ITEPA appropriately resulting in unpaid tax
  • then liability for the unpaid tax may transfer to:
  • a director or other office-holder or associate of the employment intermediary
  • an MSC provider - or a party who would be the MSC provider in cases where the employment intermediary would be an MSC disregarding section 61B(1)(c)
  • a person who (directly or indirectly) has encouraged or been actively involved in the provision by the employment intermediary of the services of the individual
  • a director or other office-holder, or an associate, of a person (other than an individual)

 

For these purposes, ‘associate’, ‘director’ and ‘MSC provider’ have the meanings given at section 688A of ITEPA - ESM3625. The meaning of ‘MSC’ has the meaning given by section 61B of ITEPA but as amended by section 339A (11) of ITEPA.

Example 1 - when the employment intermediary is an MSC - all conditions in section 61B(1) ITEPA are satisfied

Peter works as an IT consultant under arrangements with AB Recruiters (the MSC provider) who manage the provision of his services via his own service company and the associated accounting functions. The MSC legislation applies.

When determining whether the employment intermediaries travel expense provisions apply the basic conditions [ESM5530] must be considered and the provisions relating to SDC [ESM5560].

Example 2 - when the employment intermediary would be an MSC - section 61B(1)(c) not satisfied

An agency recently arranged for Bronwyn to set up a service company through an MSC provider. Her services are personally provided to NHS Trusts, the agency pays her PSC amounts for her services and she withdraws a salary subject to PAYE (Pay As You Earn) Income Tax and Class 1 NICs. The agency makes all the arrangements with the clients but the MSC provider deals with all accounting invoices and company returns. Bronwyn is under the control of the client in how she goes about the work.

Section 61B(1)(c) is not satisfied because the payments are made in a way which results in Bronwyn receiving payments of an amount (net of tax and Class 1 NICs) equal to that which would be received (net of tax and NICs) if every payment in respect of the services were her employment income. Bronwyn’s company would be an MSC within the meaning of section 61B(1) but disregarding subsection 61B(1)(c). Therefore, when determining whether the employment intermediaries travel expense provisions apply, the basic conditions must be considered [ESM5530] and the provisions relating to SDC [ESM5560]. As Bronwyn is controlled in how she does her work, the employment intermediaries travel expense rules will apply.