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HMRC internal manual

Employment Status Manual

Employment intermediaries travel expense provisions: modified provisions for employment intermediaries within the scope of the intermediaries legislation, Chapter 8 ITEPA

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

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

The employment intermediaries travel expense provisions are modified when a worker provides their personal services through an employment intermediary and the engagement falls within the scope of section 49, in Chapter 8 Part 2 ITEPA. The intermediary also needs to consider whether it meets the relevant conditions in section 51, 52 and 53 ITEPA (bearing in mind that section 51 is subject to the disregard and interpretation explained below).  Where these conditions are met and the modification applies, whether the worker is subject to (or to the right of) SDC by any person [ESM5560] is not considered, unless the intermediary is an MSC (ESM5570).

HMRC considers that this modification will apply (subject to the exception below) when a worker provides their personal services via their own PSC or a partnership or an individual.  For the purposes of the modification to the employment intermediaries travel expense provisions, in determining whether the provisions at ITEPA, sections 51, 52 or 53 are or would be met in relation to the employment intermediary, in section 51:

  • (i) disregard “either” in the opening words and (ii) disregard paragraph (b) (and the preceding “or”), and
  • references to the intermediary are to be read as references to the employment intermediary.

For tax purposes, when considering the conditions in modified section 51, a company will only meet the conditions where it is not an associated company of the client and the worker has a material interest in the intermediary.

For NICs purposes, similar provisions will apply from 6 July 2016.  However, for NICs purposes only from 6 April 2016 to 5 July 2016, the legislation relating to the modification is applied differently. In these circumstances, when considering whether the conditions in section 51, 52 or 53 of ITEPA are met in relation to the employment intermediary:

  • in section 50(1)(b) of that Act, disregard the words “that is not employment income”, and
  • read references to the intermediary as references the employment intermediary.

 

This means that for NICs purposes only, for the period 6 April 2016 to 5 July 2016 the modification could apply in a wider range of circumstances, including where the intermediary is an umbrella company. HMRC considers that workers engaged by umbrella companies would be correctly categorised as employees when the full arrangements of an engagement are considered as they applied in practice. In those cases, the employment intermediaries travel expense provisions would apply without the need to consider the SDC test.

Modification applies and worker is an office-holder of client, or would be an office-holder or employee if engaged directly

The employment intermediaries travel expense provisions will apply where:

  • the basic conditions are met [ESM5530], and
  • the worker is an office-holder of the client or would be regarded as an office-holder or employee of the client if engaged directly by the client (as determined by the full terms of the arrangements applying the case law tests [ESM500], and
  • the conditions in section 51, 52 or 53 ITEPA are met in relation to the intermediary (and regardless of whether the worker is paid or has rights to be paid all the remuneration for his services as employment income), and
  • the intermediary is not an MSC

 

To determine if the worker would be regarded as an office-holder or employee of the client, it is necessary to consider the actual relationship between the worker and the client and to construct a hypothetical contract. When constructing the hypothetical contract the full actual terms of the arrangements must be taken into account.

Where worker is engaged via his own PSC which is subject to the intermediaries legislation (or would be but for the fact the worker takes all the PSC’s income for his services as a salary from the PSC) then the employment intermediaries travel expense provisions will apply (without the need to consider the SDC test).

Modification applies and worker is not an office-holder of the client and would not be regarded as an office-holder or employee of the client if engaged directly

The employment intermediaries travel expense provisions won’t apply:

  • where a contract is within the scope of the intermediaries legislation, and
  • the worker is not an office-holder of the client, and wouldn’t be considered an office-holder or employee of the client if they were directly engaged by the client for the engagement (as determined by the full terms of the arrangements applying the case law tests)
  • unless the intermediary is an MSC [ESM5570]

 

Exception

The modification described above relating to employment intermediaries within the scope of the intermediaries  legislation doesn’t apply if the worker personally provides services through a company which is an MSC within the meaning given by section 61B ITEPA, or would be such a company disregarding section 61B(1)(c) ITEPA [ESM5570]. This is regardless of whether or not that company also needs to consider the intermediaries legislation.

Transfer of debt provisions

Where a PSC is working on a contract that is subject to the intermediaries legislation (or would be but for the fact the worker, or an associate, takes all their remuneration from the intermediary as employment income as described above) then any unpaid tax resulting from not applying section 339A ITEPA appropriately can be transferred to the director(s) or officer(s) of the PSC [ESM5670].

This also currently applies where any employment intermediary doesn’t properly consider that the worker would be considered an employee of the client if they were engaged directly.