Finance (No. 2) Bill (HL Bill 156)

(i) if the services were provided under a contract directly
between the client and the worker, the worker would
be regarded for income tax purposes as an employee
of the client or the holder of an office under the client,
5or

(ii) the worker is an office-holder who holds that office
under the client and the services relate to the office.

(2) The reference in subsection (1)(c) to a “third party” includes a
partnership or unincorporated association of which the worker is a
10member.

(3) The circumstances referred to in subsection (1)(d) include the terms
on which the services are provided, having regard to the terms of the
contracts forming part of the arrangements under which the services
are provided.

(4) 15Holding office as statutory auditor of the client does not count as
holding office under the client for the purposes of subsection (1)(d),
and here “statutory auditor” means a statutory auditor within the
meaning of Part 42 of the Companies Act 2006 (see section 1210 of
that Act).

(5) 20In this Chapter “engagement to which this Chapter applies” means
any such provision of services as is mentioned in subsection (1).

61N Worker treated as receiving earnings from employment

(1) If one of Conditions A to C is met, identify the chain of two or more
persons where—

(a) 25the highest person in the chain is the client,

(b) the lowest person in the chain is the intermediary, and

(c) each person in the chain above the lowest makes a chain
payment to the person immediately below them in the chain.

(See section 61U for cases where one of Conditions A to C is treated
30as being met.)

(2) In this section and sections 61O to 61S—

• “chain payment” means a payment, or money’s worth or any
  other benefit, that can reasonably be taken to be for the
  worker’s services to the client,

• 35“make”—

  (a)

  in relation to a chain payment that is money’s worth,
  means transfer, and

  (b)

  in relation to a chain payment that is a benefit other
  than a payment or money’s worth, means provide,
  40and

• “the fee-payer” means the person in the chain immediately
  above the lowest.

(3) The fee-payer is treated as making to the worker, and the worker is
treated as receiving, a payment which is to be treated as earnings
45from an employment (“the deemed direct payment”), but this is
subject to subsections (5) to (7) and sections 61T and 61V.

(4) The deemed direct payment is treated as made at the same time as
the chain payment made by the fee-payer.

(5) Subsections (6) and (7) apply, subject to sections 61T and 61V, if the
fee-payer—

(a) 5is not the client, and

(b) is not a qualifying person.

(6) If there is no person in the chain below the highest and above the
lowest who is a qualifying person, subsections (3) and (4) have effect
as if for any reference to the fee-payer there were substituted a
10reference to the client.

(7) Otherwise, subsections (3) and (4) have effect as if for any reference
to the fee-payer there were substituted a reference to the person in
the chain who—

(a) is above the lowest,

(b) 15is a qualifying person, and

(c) is lower in the chain than any other person in the chain
who—

(i) is above the lowest, and

(ii) is a qualifying person.

(8) 20In subsections (5) to (7) a “qualifying person” is a person who—

(a) is resident in the United Kingdom or has a place of business
in the United Kingdom,

(b) is not a person who is controlled by—

(i) the worker, alone or with one or more associates of
25the worker, or

(ii) an associate of the worker, with or without other
associates of the worker, and

(c) if a company, is not one in which—

(i) the worker, alone or with one or more associates of
30the worker, or

(ii) an associate of the worker, with or without other
associates of the worker,

has a material interest (within the meaning given by section
51(4) and (5)).

(9) 35Condition A is that—

(a) the intermediary is a company, and

(b) the conditions in section 61O are met in relation to the
intermediary.

(10) Condition B is that—

(a) 40the intermediary is a partnership,

(b) the worker is a member of the partnership,

(c) the provision of the services is by the worker as a member of
the partnership, and

(d) the condition in section 61P is met in relation to the
45intermediary.

(11) Condition C is that the intermediary is an individual.

(12) Where a payment, money’s worth or any other benefit can
reasonably be taken to be for both—

(a) the worker’s services to the client, and

(b) anything else,

5then, for the purposes of this Chapter, so much of it as can, on a just
and reasonable apportionment, be taken to be for the worker’s
services is to be treated as (and the rest is to be treated as not being)
a payment, or money’s worth or another benefit, that can reasonably
be taken to be for the worker’s services.

61O 10Conditions where intermediary is a company

(1) The conditions mentioned in section 61N(9)(b) are that—

(a) the intermediary is not an associated company of the client
that falls within subsection (2), and

(b) the worker has a material interest in the intermediary.

(2) 15An associated company of the client falls within this subsection if it
is such a company by reason of the intermediary and the client being
under the control—

(a) of the worker, or

(b) of the worker and other persons.

(3) 20The worker is treated as having a material interest in the
intermediary if—

(a) the worker, alone or with one or more associates of the
worker, or

(b) an associate of the worker, with or without other associates of
25the worker,

has a material interest in the intermediary.

(4) For this purpose “material interest” has the meaning given by section
51(4) and (5).

(5) In this section “associated company” has the meaning given by
30section 449 of CTA 2010.

61P Conditions where intermediary is a partnership

(1) The condition mentioned in section 61N(10)(d) is—

(a) that the worker, alone or with one or more relatives, is
entitled to 60% or more of the profits of the partnership, or

(b) 35that most of the profits of the partnership derive from the
provision of services under engagements to which one or
other of this Chapter and Chapter 8 applies—

(i) to a single client, or

(ii) to a single client together with associates of that client,
40or

(c) that under the profit sharing arrangements the income of any
of the partners is based on the amount of income generated
by that partner by the provision of services under
engagements to which one or other of this Chapter and
45Chapter 8 applies.

(2) In subsection (1)(a) “relative” means spouse or civil partner, parent
or child or remoter relation in the direct line, or brother or sister.

(3) Section 61(4) and (5) apply for the purposes of this section as they
apply for the purposes of Chapter 8.

61Q Calculation of deemed direct payment

(1) The amount of the deemed direct payment is the amount resulting
5from the following steps—

Step 1

Identify the amount or value of the chain payment made by the
person who is treated as making the deemed direct payment, and
deduct from that amount so much of it (if any) as is in respect of
10value added tax.

Step 2

Deduct, from the amount resulting from Step 1, so much of that
amount as represents the direct cost to the intermediary of materials
used, or to be used, in the performance of the services.

15Step 3

Deduct, at the option of the person treated as making the deemed
direct payment, from the amount resulting from Step 2, so much of
that amount as represents expenses met by the intermediary that
would have been deductible from the taxable earnings from the
20employment if—

(a) the worker had been employed by the client, and

(b) the expenses had been met by the worker out of those
earnings.

Step 4

25If the amount resulting from the preceding Steps is nil or negative,
there is no deemed direct payment. Otherwise, that amount is the
amount of the deemed direct payment.

(2) For the purposes of Step 1 of subsection (1), any part of the amount
or value of the chain payment which is employment income of the
30worker by virtue of section 863G(4) of ITTOIA 2005 (salaried
members of limited liability partnerships: anti-avoidance) is to be
ignored.

(3) In subsection (1), the reference to the amount or value of the chain
payment means the amount or value of that payment before the
35deduction (if any) permitted under section 61S.

(4) If the actual amount or value of the chain payment mentioned in Step
1 of subsection (1) is such that its recipient bears the cost of amounts
due under PAYE regulations or contributions regulations in respect
of the deemed direct payment, that Step applies as if the amount or
40value of that chain payment were what it would be if the burden of
that cost were not being passed on through the setting of the level of
the payment.

(5) In Step 3 of subsection (1), the reference to expenses met by the
intermediary includes—

(a) 45expenses met by the worker and reimbursed by the
intermediary, and

(b) where the intermediary is a partnership and the worker is a
member of the partnership, expenses met by the worker for
and on behalf of the partnership.

(6) In subsection (4) “contributions regulations” means regulations
under the Contributions and Benefits Act providing for primary
Class 1 contributions to be paid in a similar manner to income tax in
relation to which PAYE regulations have effect (see, in particular,
5paragraph 6(1) of Schedule 1 to the Act); and here “primary Class 1
contribution” means a primary Class 1 contribution within the
meaning of Part 1 of the Contributions and Benefits Act.

61R Application of Income Tax Acts in relation to deemed employment

(1) The Income Tax Acts (in particular, Part 11 and PAYE regulations)
10apply in relation to the deemed direct payment as follows.

(2) They apply as if—

(a) the worker were employed by the person treated as making
the deemed direct payment, and

(b) the services were performed, or to be performed, by the
15worker in the course of performing the duties of that
employment.

(3) The deemed direct payment is treated in particular—

(a) as taxable earnings from the employment for the purpose of
securing that any deductions under Chapters 2 to 6 of Part 5
20do not exceed the deemed direct payment, and

(b) as taxable earnings from the employment for the purposes of
section 232.

(4) The worker is not chargeable to tax in respect of the deemed direct
payment if, or to the extent that, by reason of any combination of the
25factors mentioned in subsection (5), the worker would not be
chargeable to tax if—

(a) the client employed the worker,

(b) the worker performed the services in the course of that
employment, and

(c) 30the deemed direct payment were a payment by the client of
earnings from that employment.

(5) The factors are—

(a) the worker being resident or domiciled outside the United
Kingdom or meeting the requirement of section 26A,

(b) 35the client being resident outside, or not resident in, the
United Kingdom, and

(c) the services being provided outside the United Kingdom.

(6) Where the intermediary is a partnership or unincorporated
association, the deemed direct payment is treated as received by the
40worker in the worker’s personal capacity and not as income of the
partnership or association.

(7) Where—

(a) the client is the person treated as making the deemed direct
payment,

(b) 45the worker is resident in the United Kingdom,

(c) the services are provided in the United Kingdom,

(d) the client is not resident in the United Kingdom, and

(e) the client does not have a place of business in the United
Kingdom,

the client is treated as resident in the United Kingdom.

61S Deductions from chain payments

(1) 5This section applies if, as a result of section 61R, a person who is
treated as making a deemed direct payment is required under PAYE
Regulations to pay an amount to the Commissioners for Her
Majesty’s Revenue and Customs (the Commissioners) in respect of
the payment.

10(But see subsection (4)).

(2) The person may deduct from the underlying chain payment an
amount which is equal to the amount payable to the Commissioners,
but where the amount or value of the underlying chain payment is
treated by section 61Q(4) as increased by the cost of any amount due
15under PAYE Regulations, the amount that may be deducted is
limited to the difference (if any) between the amount payable to the
Commissioners and the amount of that increase.

(3) Where a person in the chain other than the intermediary receives a
chain payment from which an amount has been deducted in reliance
20on subsection (2) or this subsection, that person may deduct the same
amount from the chain payment made by them.

(4) This section does not apply in a case to which 61V(2) applies
(services-provider treated as making deemed direct payment).

(5) In subsection (2) “the underlying chain payment” means the chain
25payment whose amount is used at Step 1 of section 61Q(1) as the
starting point for calculating the amount of the deemed direct
payment.

61T Information to be provided by clients and consequences of failure

(1) If the conditions in section 61M(1)(a) to (c) are met in any case, and a
30person as part of the arrangements mentioned in section 61M(1)(c)
enters into a contract with the client, the client must inform that
person (in the contract or otherwise) of which one of the following is
applicable—

(a) the client has concluded that the condition in section
3561M(1)(d) is met in the case;

(b) the client has concluded that the condition in section
61M(1)(d) is not met in the case.

(2) If the contract is entered into on or after 6 April 2017, the duty under
subsection (1) must be complied with—

(a) 40on or before the time of entry into the contract, or

(b) if the services begin to be performed at a later time, before
that later time.

(3) If the contract is entered into before 6 April 2017, the duty under
subsection (1) must be complied with on or before the date of the first
45payment made under the contract on or after 6 April 2017.

(4) If the information which subsection (1) requires the client to give to
a person has been given (whether in the contract, as required by

subsection (2) or (3) or otherwise), the client must, on a written
request by the person, provide the person with a written response to
any questions raised by the person about the client’s reasons for
reaching the conclusion identified in the information.

(5) 5A response required by subsection (4) must be provided before the
end of 31 days beginning with the day the request for it is received
by the client.

(6) If—

(a) the client fails to comply with the duty under subsection (1)
10within the time allowed by subsection (2) or (3),

(b) the client fails to provide a response required by subsection
(4) within the time allowed by subsection (5), or

(c) the client complies with the duty under subsection (1) but
fails to take reasonable care in coming to its conclusion as to
15whether the condition in section 61M(1)(d) is met in the case,

section 61N(3) and (4) have effect in the case as if for any reference to
the fee-payer there were substituted a reference to the client, but this
is subject to section 61V.

61U Information to be provided by worker and consequences of failure

(1) 20In the case of an engagement to which this Chapter applies, the
worker must inform the potential deemed employer of which one of
the following is applicable—

(a) that one of conditions A to C in section 61N is met in the case;

(b) that none of conditions A to C in section 61N is met in the
25case.

(2) If the worker has not complied with subsection (1), then for the
purposes of section 61N(1), one of conditions A to C in section 61N
is to be treated as met.

(3) In this section, “the potential deemed employer” is the person who,
30if one of conditions A to C in section 61N were met, would be treated
as making a deemed direct payment to the worker under section
61N(3).

61V Consequences of providing fraudulent information

(1) Subsection (2) applies if in any case—

(a) 35a person (“the deemed employer”) would, but for this
section, be treated by section 61N(3) as making a payment to
another person (“the services-provider”), and

(b) the fraudulent documentation condition is met.

(2) Section 61N(3) has effect in the case as if the reference to the fee-
40payer were a reference to the services-provider, but—

(a) section 61N(4) continues to have effect as if the reference to
the fee-payer were a reference to the deemed employer, and

(b) Step 1 of section 61Q(1) continues to have effect as referring
to the chain payment made by the deemed employer.

(3) 45Subsection (2) has effect even though that involves the services-
provider being treated as both employer and employee in relation to
the deemed employment under section 61N(3).

(4) “The fraudulent documentation condition” is that a relevant person
provided any person with a fraudulent document intended to
constitute evidence—

(a) that the case is not an engagement to which this Chapter
5applies, or

(b) that none of conditions A to C in section 61N is met in the
case.

(5) A “relevant person” is—

(a) the services-provider;

(b) 10a person connected with the services-provider;

(c) if the intermediary in the case is a company, an office-holder
in that company.

61W Prevention of double charge to tax and allowance of certain
deductions

(1) 15Subsection (2) applies where—

(a) a person (“the payee”) receives a payment or benefit (“the
end-of-line remuneration”) from another person (“the paying
intermediary”),

(b) the end-of-line remuneration can reasonably be taken to
20represent remuneration for services of the payee to a public
authority,

(c) a payment (“the deemed payment”) has been treated by
section 61N(3) as made to the payee,

(d) the underlying chain payment can reasonably be taken to be
25for the same services of the payee to that public authority,
and

(e) the recipient of the underlying chain payment has (whether
by deduction from that payment or otherwise) borne the cost
of any amounts due, under PAYE regulations and
30contributions regulations in respect of the deemed payment,
from the person treated by section 61N(3) as making the
deemed payment.

(2) For income tax purposes, the paying intermediary and the payee
may treat the amount of the end-of-line remuneration as reduced
35(but not below nil) by any one or more of the following—

(a) the amount (see section 61Q) of the deemed payment;

(b) the amount of any capital allowances in respect of
expenditure incurred by the paying intermediary that could
have been deducted from employment income under section
40262 of CAA 2001 if the payee had been employed by the
public authority and had incurred the expenditure;

(c) the amount of any contributions made, in the same tax year
as the end-of-line remuneration, for the benefit of the payee
by the paying intermediary to a registered pension scheme
45that if made by an employer for the benefit of an employee
would not be chargeable to income tax as income of the
employee.

(3) Subsection (2)(c)does not apply to—

(a) excess contributions paid and later repaid,

(b) contributions set under subsection (2) against another
payment by the paying intermediary, or

(c) contributions deductible at Step 5 of section 54(1) in
calculating the amount of the payment (if any) treated by
5section 50 as made in the tax year concerned by the paying
intermediary to the payee.

(4) For the purposes of subsection (3)(c), the contributions to which Step
5 of section 54(1) applies in the case of the particular calculation are
“deductible” at that Step so far as their amount does not exceed the
10result after Step 4 in that calculation.

(5) In subsection (1)(d) “the underlying chain payment” means the chain
payment whose amount is used at Step 1 of section 61Q(1) as the
starting point for calculating the amount of the deemed payment.

(6) Subsection (2) applies whether the end-of-line remuneration—

(a) 15is earnings of the payee,

(b) is a distribution of the paying intermediary, or

(c) takes some other form.

61X Interpretation

In this Chapter—

• 20“associate” has the meaning given by section 60;

• “company” means a body corporate or unincorporated
  association, and does not include a partnership;

• “engagement to which Chapter 8 applies” has the meaning
  given by section 49(5).””

25Part 3 Consequential amendments

10 In section 7(5)(a) of ITEPA 2003 (amounts treated as earnings by Chapters 7
to 9 of Part 2 are “employment income” and “general earnings”), for “9”
substitute “10”.

11 30In section 49 of ITEPA 2003 (engagements to which Chapter 8 of Part 2
applies), after subsection (4) insert—

“(4A) Holding office as statutory auditor of the client does not count as
holding office under the client for the purposes of subsection (1)(c),
and here “statutory auditor” means a statutory auditor within the
35meaning of Part 42 of the Companies Act 2006 (see section 1210 of
that Act).””

12 In section 339A of ITEPA 2003 (travel for employment involving
intermediaries), after subsection (6) insert—

“(6A) Subsection (3) does not apply in relation to an engagement if—

(a) 40sections 61N to 61R in Chapter 10 of Part 2 apply in relation
to the engagement,

(b) one of Conditions A to C in section 61N is met in relation to
the employment intermediary, and

(c) the employment intermediary is not a managed service
company.

(6B) This section does not apply in relation to an engagement if—

(a) sections 61N to 61R in Chapter 10 of Part 2 do not apply in
5relation to the engagement because the circumstances in
section 61M(1)(d) are not met,

(b) assuming those circumstances were met, one of Conditions A
to C in section 61N would be met in relation to the
employment intermediary, and

(c) 10the employment intermediary is not a managed service
company.

(6C) In determining for the purposes of subsection (6A) or (6B) whether
one of Conditions A to C in section 61N is or would be met in relation
to the employment intermediary, read references to the intermediary
15as references to the employment intermediary.””

13 In Chapter 11 of Part 2 of ITTOIA 2005 (trade profits: specific trades), after
section 164A insert—

““Worker’s services provided to public sector through intermediary

164B Intermediaries providing worker’s services to public sector

(1) 20This section applies for the purposes of calculating the trading
profits of a person where—

(a) the person is the intermediary in a chain identified under
section 61N of ITEPA 2003 (see section 61N(1)(b)),

(b) a deemed direct payment is treated as made under
25subsection (3) of that section, and

(c) the person receives a payment which can reasonably be taken
to be in respect of the same services as those in respect of
which the underlying chain payment is made.

(2) The payment mentioned in subsection (1)(c) is not required to be
30brought into account in calculating the profits of the trade.

(3) In this section “underlying chain payment” means the payment
whose amount is used at Step 1 of section 61Q(1) of ITEPA 2003 as
the starting point for calculating the amount of the deemed direct
payment mentioned in subsection (1)(b).””

14 35In Chapter 9 of Part 3 of CTA 2009 (trade profits: specific trades), after
section 141 insert—

““Worker’s services provided to public sector through intermediary

141A Intermediaries providing worker’s services to public sector

(1) This section applies for the purposes of calculating the trading
40profits of a person where—

(a) the person is the intermediary in a chain identified under
section 61N of ITEPA 2003 (see section 61N(1)(b)),

(b) a deemed direct payment is treated as made under
subsection (3) of that section, and