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Step 5 | |
Deduct any contributions made in the year for the benefit of the worker by the | |
intermediary to a scheme approved under Chapter 1 or 4 of Part 14 of ICTA | |
that if made by an employer for the benefit of an employee would not be | 5 |
chargeable to income tax as income of the employee. | |
This does not apply to excess contributions made and later repaid. | |
| |
Step 6 | |
Deduct the amount of any employer’s national insurance contributions paid by | 10 |
the intermediary for the year in respect of the worker. | |
| |
Step 7 | |
Deduct the amount of any payments and benefits received in the year by the | |
worker from the intermediary— | 15 |
(a) in respect of which the worker is chargeable to income tax as | |
employment income, and | |
(b) which do not represent items in respect of which a deduction was made | |
under step 3. | |
| 20 |
Step 8 | |
Assume that the result of step 7 represents an amount together with | |
employer’s national insurance contributions on it, and deduct what (on that | |
assumption) would be the amount of those contributions. | |
| 25 |
The result is the deemed employment payment. | |
(2) If section 559 of ICTA applies (sub-contractors in the construction industry: | |
payments to be made under deduction), the intermediary is treated for the | |
purposes of step 1 of subsection (1) as receiving the amount that would have | |
been received had no deduction been made under that section. | 30 |
(3) In step 3 of subsection (1), the reference to expenses met by the intermediary | |
includes— | |
(a) expenses 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 | 35 |
partnership. | |
(4) In step 3 of subsection (1), the expenses deductible include the amount of any | |
mileage allowance relief for the year which the worker would have been | |
entitled to in respect of the use of a vehicle falling within subsection (5) if— | |
(a) the worker had been employed by the client, and | 40 |
(b) the vehicle had not been a company vehicle (within the meaning of | |
Chapter 2 of Part 4). | |
(5) A vehicle falls within this subsection if— | |
(a) it is provided by the intermediary for the worker, or | |
(b) where the intermediary is a partnership and the worker is a member of | 45 |
the partnership, it is provided by the worker for the purposes of the | |
business of the partnership. | |
| |
| |
|
| |
| |
(6) Where, on the assumptions mentioned in paragraphs (a) and (b) of step 3 of | |
subsection (1), the deductibility of the expenses is determined under sections | |
337 to 342 (travel expenses), the duties performed under the relevant | |
engagements are treated as duties of a continuous employment with the | |
intermediary. | 5 |
(7) In step 7 of subsection (1), the amounts deductible include any payments | |
received in the year from the intermediary that— | |
(a) are exempt from income tax by virtue section 229 or 233 (mileage | |
allowance payments and passenger payments), and | |
(b) do not represent items in respect of which a deduction was made under | 10 |
step 3. | |
(8) For the purposes of subsection (1) any necessary apportionment is to be made | |
on a just and reasonable basis of amounts received by the intermediary that are | |
referable— | |
(a) to the services of more than one worker, or | 15 |
(b) partly to the services of the worker and partly to other matters. | |
55 Application of rules relating to earnings from employment | |
(1) The following provisions apply in relation to the calculation of the deemed | |
employment payment. | |
(2) A “payment or benefit” means anything that, if received by an employee for | 20 |
performing the duties of an employment, would be earnings from the | |
employment. | |
(3) The amount of a payment or benefit is taken to be— | |
(a) in the case of a payment or cash benefit, the amount received, and | |
(b) in the case of a non-cash benefit, the cash equivalent of the benefit. | 25 |
(4) The cash equivalent of a non-cash benefit is taken to be— | |
(a) the amount that would be earnings if the benefit were earnings from an | |
employment, or | |
(b) in the case of living accommodation, whichever is the greater of that | |
amount and the cash equivalent determined in accordance with section | 30 |
398(2). | |
(5) A payment or benefit is treated as received— | |
(a) in the case of a payment or cash benefit, when payment is made of or | |
on account of the payment or benefit; | |
(b) in the case of a non-cash benefit that is calculated by reference to a | 35 |
period within the tax year, at the end of that period, | |
(c) in the case of a non-cash benefit that is not so calculated, when it would | |
have been treated as received for the purposes of Chapter 4 or 5 of this | |
Part (see section 19 or 32) if— | |
(i) the worker had been an employee, and | 40 |
(ii) the benefit had been provided by reason of the employment. | |
56 Application of Income Tax Acts in relation to deemed employment | |
(1) The Income Tax Acts (in particular, the PAYE provisions) apply in relation to | |
the deemed employment payment as follows. | |
| |
| |
|
| |
| |
(2) They apply as if— | |
(a) the worker were employed by the intermediary, and | |
(b) the relevant engagements were undertaken by the worker in the course | |
of performing the duties of that employment. | |
(3) The deemed employment payment is treated in particular— | 5 |
(a) as taxable earnings from the employment for the purpose of securing | |
that any deductions under Chapters 2 to 6 of Part 5 do not exceed the | |
deemed employment payment; and | |
(b) as taxable earnings from the employment for the purposes of section | |
232. | 10 |
(4) The worker is not chargeable to tax in respect of the deemed employment | |
payment if, or to the extent that, by reason of any combination of the factors | |
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, | 15 |
and | |
(c) the deemed employment payment were a payment by the client of | |
earnings from that employment. | |
(5) The factors are— | |
(a) the worker being resident, ordinarily resident or domiciled outside the | 20 |
United Kingdom, | |
(b) the client being resident or ordinarily resident outside the United | |
Kingdom, and | |
(c) the services in question being provided outside the United Kingdom. | |
(6) Where the intermediary is a partnership or unincorporated association, the | 25 |
deemed employment payment is treated as received by the worker in the | |
worker’s personal capacity and not as income of the partnership or association. | |
(7) Where— | |
(a) the worker is resident in the United Kingdom, | |
(b) the services in question are provided in the United Kingdom, and | 30 |
(c) the client or employer carries on business in the United Kingdom, | |
the intermediary is treated as having a place of business in the United | |
Kingdom, whether or not it in fact does so. | |
(8) The deemed employment payment is treated as relevant earnings of the | |
worker for the purposes of section 644 of ICTA (relevant earnings for purposes | 35 |
of permissible pension contributions). | |
Supplementary provisions | |
57 Earlier date of deemed employment payment in certain cases | |
(1) If in any tax year— | |
(a) a deemed employment payment is treated as made, and | 40 |
(b) before the date on which the payment would be treated as made under | |
section 50(2) any relevant event (as defined below) occurs in relation to | |
the intermediary, | |
| |
| |
|
| |
| |
the deemed employment payment for that year is treated as having been made | |
immediately before that event or, if there is more than one, immediately before | |
the first of them. | |
(2) Where the intermediary is a company the following are relevant events— | |
(a) the company ceasing to trade; | 5 |
(b) where the worker is a member of the company, the worker ceasing to | |
be such a member; | |
(c) where the worker holds an office with the company, the worker ceasing | |
to hold such an office; | |
(d) where the worker is employed by the company, the worker ceasing to | 10 |
be so employed. | |
(3) Where the intermediary is a partnership the following are relevant events— | |
(a) the dissolution of the partnership or the partnership ceasing to trade or | |
a partner ceasing to act as such; | |
(b) where the worker is employed by the partnership, the worker ceasing | 15 |
to be so employed. | |
(4) Where the intermediary is an individual and the worker is employed by the | |
intermediary, it is a relevant event if the worker ceases to be so employed. | |
(5) The fact that the deemed employment payment is treated as made before the | |
end of the tax year does not affect what receipts and other matters are taken | 20 |
into account in calculating its amount. | |
58 Relief in case of distributions by intermediary | |
(1) A claim for relief may be made under this section where the intermediary— | |
(a) is a company, | |
(b) is treated as making a deemed employment payment in any tax year, | 25 |
and | |
(c) either in that tax year (whether before or after that payment is treated | |
as made), or in a subsequent tax year, makes a distribution (a “relevant | |
distribution”). | |
(2) A claim for relief under this section must be made— | 30 |
(a) by the intermediary by notice to the Inland Revenue, and | |
(b) within 5 years after the 31st January following the tax year in which the | |
distribution is made. | |
(3) If on a claim being made the Inland Revenue are satisfied that relief should be | |
given in order to avoid a double charge to tax, they must direct the giving of | 35 |
such relief by way of amending any assessment, by discharge or repayment of | |
tax, or otherwise, as appears to them appropriate | |
(4) Relief under this section is given by setting the amount of the deemed | |
employment payment against the relevant distribution so as to reduce the | |
distribution. | 40 |
(5) In the case of more than one relevant distribution, the Inland Revenue must | |
exercise the power conferred by this section so as to secure that so far as | |
practicable relief is given by setting the amount of a deemed employment | |
payment— | |
(a) against relevant distributions of the same tax year before those of other | 45 |
years, | |
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| |
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| |
| |
(b) against relevant distributions received by the worker before those | |
received by another person, and | |
(c) against relevant distributions of earlier years before those of later years. | |
(6) Where the amount of a relevant distribution is reduced under this section, the | |
amount of any associated tax credit is reduced accordingly. | 5 |
59 Provisions applicable to multiple intermediaries | |
(1) The provisions of this section apply where in the case of an engagement to | |
which this Chapter applies the arrangements involve more than one relevant | |
intermediary. | |
(2) All relevant intermediaries in relation to the engagement are jointly and | 10 |
severally liable, subject to subsection (3), to account for any amount required | |
under the PAYE provisions to be deducted from a deemed employment | |
payment treated as made by any of them— | |
(a) in respect of that engagement, or | |
(b) in respect of that engagement together with other engagements. | 15 |
(3) An intermediary is not so liable if it has not received any payment or benefit in | |
respect of that engagement or any such other engagement as is mentioned in | |
subsection (2)(b). | |
(4) Subsection (5) applies where a payment or benefit has been made or provided, | |
directly or indirectly, from one relevant intermediary to another in respect of | 20 |
the engagement. | |
(5) In that case, the amount taken into account in relation to any intermediary in | |
step 1 or step 2 of section 54(1) is reduced to such extent as is necessary to avoid | |
double-counting having regard to the amount so taken into account in relation | |
to any other intermediary. | 25 |
(6) Except as provided by subsections (2) to (5), the provisions of this Chapter | |
apply separately in relation to each relevant intermediary | |
(7) In this section “relevant intermediary” means an intermediary in relation to | |
which the conditions specified in section 51, 52 or 53 are met. | |
60 Meaning of “associate” | 30 |
(1) In this Chapter “associate”— | |
(a) in relation to an individual, has the meaning given by section 417(3) | |
and (4) of ICTA, subject to the following provisions of this section; | |
(b) in relation to a company, means a person connected with the company; | |
and | 35 |
(c) in relation to a partnership, means any associate of a member of the | |
partnership. | |
(2) Where an individual has an interest in shares or obligations of the company as | |
a beneficiary of an employee benefit trust, the trustees are not regarded as | |
associates of the individual by reason only of that interest except in the | 40 |
following circumstances. | |
(3) The exception is where— | |
(a) the individual, either alone or with any one or more associates of the | |
individual, or | |
| |
| |
|
| |
| |
(b) any associate of the individual, with or without other such associates, | |
has at any time on or after 14th March 1989 been the beneficial owner of, or able | |
(directly or through the medium of other companies or by any other indirect | |
means) to control more than 5% of the ordinary share capital of the company. | |
(4) In subsection (3) “associate” does not include the trustees of an employee | 5 |
benefit trust as a result only of the individual’s having an interest in shares or | |
obligations of the trust. | |
(5) Sections 549 to 554 (attribution of interests in companies to beneficiaries of | |
employee benefit trusts) apply for the purposes of subsection (3) as they apply | |
for the purposes of the provisions listed in section 549(2). | 10 |
(6) In this section “employee benefit trust” has the meaning given by sections 550 | |
and 551. | |
61 Interpretation | |
(1) In this Chapter— | |
“associate” has the meaning given by section 60; | 15 |
“associated company” has the meaning given by section 416 of ICTA; | |
“business” means any trade, profession or vocation and includes a | |
Schedule A business; | |
“company” means a body corporate or unincorporated association, and | |
does not include a partnership; | 20 |
“employer’s national insurance contributions” means secondary Class 1 | |
or Class 1A national insurance contributions; | |
“engagement to which this Chapter applies” has the meaning given by | |
section 49(5); | |
“national insurance contributions” means contributions under Part 1 of | 25 |
SSCBA 1992 or Part 1 of SSCB(NI)A 1992; | |
“PAYE provisions” means the provisions of Part 11 or PAYE regulations; | |
“the relevant engagements” has the meaning given by section 50(4). | |
(2) References in this Chapter to payments or benefits received or receivable from | |
a partnership or unincorporated association include payments or benefits to | 30 |
which a person is or may be entitled in the person’s capacity as a member of | |
the partnership or association. | |
(3) For the purposes of this Chapter— | |
(a) anything done by or in relation to an associate of an intermediary is | |
treated as done by or in relation to the intermediary, and | 35 |
(b) a payment or other benefit provided to a member of an individual’s | |
family or household is treated as provided to the individual. | |
(4) For the purposes of this Chapter a man and a woman living together as | |
husband and wife are treated as if they were married to each other. | |
| |
| |
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| |
| |
Part 3 | |
Employment income: earnings and benefits etc. treated as earnings | |
Chapter 1 | |
Earnings | |
62 Earnings | 5 |
(1) This section explains what is meant by “earnings” in the employment income | |
Parts. | |
(2) In those Parts “earnings”, in relation to an employment, means— | |
(a) any salary, wages or fee, | |
(b) any gratuity or other profit or incidental benefit of any kind obtained | 10 |
by the employee if it is money or money’s worth, or | |
(c) anything else that constitutes an emolument of the employment. | |
(3) For the purposes of subsection (2) “money’s worth” means something that is— | |
(a) of direct monetary value to the employee, or | |
(b) capable of being converted into money or something of direct monetary | 15 |
value to the employee. | |
(4) Subsection (1) does not affect the operation of statutory provisions that provide | |
for amounts to be treated as earnings (and see section 721(7)). | |
Chapter 2 | |
Taxable benefits: the benefits code | 20 |
The benefits code | |
63 The benefits code | |
(1) In the employment income Parts “the benefits code” means— | |
this Chapter, | |
Chapter 3 (expenses payments), | 25 |
Chapter 4 (vouchers and credit-tokens), | |
Chapter 5 (living accommodation), | |
Chapter 6 (cars, vans and related benefits), | |
Chapter 7 (loans), | |
Chapter 8 (notional loans in respect of acquisitions of shares), | 30 |
Chapter 9 (disposals of shares for more than market value), | |
Chapter 10 (residual liability to charge), and | |
Chapter 11 (exclusion of lower-paid employments from parts of benefits | |
code). | |
(2) If an employment is an excluded employment, the general effect of section | 35 |
216(1) (provisions not applicable to lower-paid employments) is that only the | |
following Chapters apply to the employment— | |
this Chapter, | |
| |
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|
