Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 2 — Climate change levy: reduced-rate supplies etc
87

7
For paragraph 44 substitute—
“44   (1)
For the purposes of this Schedule, a taxable supply is a reduced-
rate supply if—
(a)
the taxable commodity is supplied to a facility specified in
a certificate given by the Secretary of State to the
5
Commissioners as a facility which is to be taken as being
covered by a climate change agreement for a period
specified in the certificate, and
(b)
the supply is made at a time falling in that period.
      (2)
Sub-paragraph (1) has effect subject to paragraph 45.
10
      (3)
The Commissioners may by regulations make provision for giving
effect to sub-paragraph (1).
      (4)
Regulations under this paragraph may, in particular, include
provision for determining whether any taxable commodity is
supplied to a facility.
15
      (5)
The provision that may be made by virtue of sub-paragraph (4)
includes, in particular, provision for a taxable commodity of any
description specified in the regulations to be taken as supplied to
a facility only if the commodity is delivered to the facility.”
8     (1)
Paragraph 45 (reduced-rate supplies: variation of notices under paragraph
20
44) is amended as follows.
      (2)
Omit sub-paragraphs (2) to (4).
      (3)
In sub-paragraph (5)—
(a)
in paragraph (b), for “the variation notice is published” substitute
“the variation certificate is given”, and
25
(b)
for the words following that paragraph substitute “the original
certificate has effect as if the facility had never been specified in it”.
      (4)
In sub-paragraph (6)—
(a)
in paragraph (b), for “the variation notice is published” substitute
“the variation certificate is given”, and
30
(b)
for the words following that paragraph substitute “the original
certificate has effect as if the last day of the period specified for the
facility in the original certificate were the day on which the variation
certificate is given”.
      (5)
In sub-paragraph (7), for the words from “the original notice” to the end
35
substitute “the original certificate has effect as if the last day of the period
specified for the facility in the original certificate were the later of—
(a)
the day on which the variation certificate is given, and
(b)
the day specified in the variation certificate.”
      (6)
The italic heading before that paragraph accordingly becomes “Reduced-rate
40
supplies: variation of certificates under paragraph 44”.
9
After that paragraph insert—
“Reduced-rate supplies: deemed supply
45A   (1)
This paragraph applies where—

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Schedule 2 — Climate change levy: reduced-rate supplies etc
88

(a)
a taxable supply has been made to any person (“the
recipient”),
(b)
the supply was made on the basis that it was a reduced-
rate supply, and
(c)
it is later determined that the supply was not a reduced-
5
rate supply.
      (2)
For the purposes of this Schedule—
(a)
the recipient is deemed to make a taxable supply to itself of
the taxable commodity, and
(b)
the amount payable by way of levy on that deemed supply
10
is 80 per cent. of the amount that would be payable if the
supply were not a reduced-rate supply.”
10
In paragraph 147 (interpretation), in the definition of “reduced-rate
supply”—
(a)
for “44(3)” substitute “44(1)”, and
15
(b)
for “44(4)” substitute “44(2)”.
Notifications and certificates
11    (1)
Paragraph 11 (exemption: supply not for burning in UK) is amended as
follows.
      (2)
In sub-paragraph (1)—
20
(a)
omit “has, before the supply is made, notified the supplier”, and
(b)
omit “that he” (in both places).
      (3)
In sub-paragraph (3)—
(a)
omit “has, before the supply is made, notified the supplier that”, and
(b)
omit “he”.
25
12    (1)
Paragraph 101 (civil penalties: incorrect notifications etc) is amended as
follows.
      (2)
Omit sub-paragraph (1).
      (3)
In sub-paragraph (2)—
(a)
after “paragraphs” insert “11,” and
30
(b)
after “the certificate is” insert “(or becomes)”.
      (4)
In sub-paragraph (3)—
(a)
for “sub-paragraph (1) or (2)” substitute “this paragraph”, and
(b)
omit “notification or”.
      (5)
In sub-paragraph (4)—
35
(a)
for “notification or certificate” substitute “certificate (or not revoking
or varying it)”,
(b)
for “the person who gave it” substitute “the person concerned”, and
(c)
for the words from “there is” to the end substitute “the person has a
reasonable excuse”.
40
      (6)
In sub-paragraph (5)—
(a)
for “notification or certificate” substitute “certificate (or not revoking
or varying it)”, and

Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003
89

(b)
for “the giving of the notification or certificate” substitute “that”.
      (7)
The italic heading before paragraph 101 accordingly becomes “Civil penalties:
incorrect certificates”.
Commencement
13    (1)
Paragraphs 2 to 10 come into force on such day as the Treasury may by order
5
made by statutory instrument appoint.
      (2)
But any power to make regulations under any provision inserted or
amended by any of those paragraphs may be exercised at any time after this
Act is passed.
      (3)
The power to make an order under sub-paragraph (1)—
10
(a)
may be exercised so as to bring a provision into force only in such
cases as may be described in the order,
(b)
may be exercised so as to make different provision for different cases
or descriptions of case,
(c)
includes power to make incidental, consequential, supplemental or
15
transitional provision or savings.
Schedule 3
Section 25

Managed service companies
Part 1
Amendments of ITEPA 2003
20
1
ITEPA 2003 is amended as follows.
2
In section 7(5) (meaning of “employment income” etc), for paragraph (a)
substitute—
“(a)
Chapters 7 to 9 of this Part (agency workers, workers under
arrangements made by intermediaries, and workers
25
providing services through managed service companies),”.
3
In section 48(2) (workers under arrangements made by intermediaries:
scope of Chapter) for “or” at the end of paragraph (a) substitute—
“(aa)
applies to services provided by a managed service company
(within the meaning of Chapter 9 of this Part), or”.
30
4
After section 61 insert—
“Chapter 9
Managed service companies
Application of this Chapter
61A
Scope of this Chapter
35
(1)
This Chapter has effect with respect to the provision of services by a
managed service company.

Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003
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(2)
Nothing in this Chapter—
(a)
affects the operation of Chapter 7 of this Part (agency
workers), or
(b)
applies to payments or transfers to which section 966(3) or (4)
of ITA 2007 applies (visiting performers: duty to deduct and
5
account for sums representing income tax).
61B
Meaning of “managed service company”
(1)
A company is a “managed service company” if—
(a)
its business consists wholly or mainly of providing (directly
or indirectly) the services of an individual to other persons,
10
(b)
payments are made (directly or indirectly) to the individual
(or associates of the individual) of an amount equal to the
greater part or all of the consideration for the provision of the
services,
(c)
the way in which those payments are made would result in
15
the individual (or associates) receiving payments of an
amount (net of tax and national insurance) exceeding that
which would be received (net of tax and national insurance)
if every payment in respect of the services were employment
income of the individual, and
20
(d)
a person who carries on a business of promoting or
facilitating the use of companies to provide the services of
individuals (“an MSC provider”) is involved with the
company.
(2)
An MSC provider is “involved with the company” if the MSC
25
provider or an associate of the MSC provider—
(a)
benefits financially on an ongoing basis from the provision of
the services of the individual,
(b)
influences or controls the provision of those services,
(c)
influences or controls the way in which payments to the
30
individual (or associates of the individual) are made,
(d)
influences or controls the company’s finances or any of its
activities, or
(e)
gives or promotes an undertaking to make good any tax loss.
(3)
A person does not fall within subsection (1)(d) merely by virtue of
35
providing legal or accountancy services in a professional capacity.
(4)
A person does not fall within subsection (1)(d) merely by virtue of
carrying on a business consisting only of placing individuals with
persons who wish to obtain their services (including by contracting
with companies which provide their services); but this subsection
40
does not apply if the person, or an associate of the person, does
anything within any of paragraphs (c) to (e) of subsection (2).
61C
Section 61B: supplementary
(1)
The Treasury may by order provide that persons of a prescribed
description do not fall within section 61B(1)(d).
45
(2)
An order under subsection (1) may be made so as to have effect in
relation to the whole of the tax year in which it is made.

Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003
91

(3)
In section 61B and this section, “company” means a body corporate
or partnership.
(4)
References in section 61B to an associate of a person (“P”) include a
person who, for the purpose of securing that the individual’s
services are provided by a company, acts in concert with P (or with
5
P and other persons).
(5)
In section 61B(2)(e), “undertaking to make good any tax loss” means
an undertaking (in any terms) to make good (in whole or in part, and
by any means) any cost to the individual or an associate of the
individual resulting from a relevant provision, or a particular kind of
10
relevant provision, applying in relation to payments made to the
individual or associate.
(6)
In subsection (5) “relevant provision” means—
(a)
a provision of the Tax Acts,
(b)
an enactment relating to national insurance, or
15
(c)
a provision of subordinate legislation made under any such
provision or enactment.
The deemed employment payment
61D
Worker treated as receiving earnings from employment
(1)
This section applies if—
20
(a)
the services of an individual (“the worker”) are provided
(directly or indirectly) by a managed service company (“the
MSC”),
(b)
the worker, or an associate of the worker, receives (from any
person) a payment or benefit which can reasonably be taken
25
to be in respect of the services, and
(c)
the payment or benefit is not earnings (within Chapter 1 of
Part 3) received by the worker directly from the MSC.
(2)
The MSC is treated as making to the worker, and the worker is
treated as receiving, a payment which is to be treated as earnings
30
from an employment (“the deemed employment payment”).
(3)
The deemed employment payment is treated as made at the time the
payment or benefit mentioned in subsection (1)(b) is received.
(4)
In this Chapter—
“the worker” has the meaning given by subsection (1),
35
“the relevant services” means the services mentioned in that
subsection, and
“the client” means the person to whom the relevant services are
provided.
(5)
Section 61F supplements this section.
40
61E
Calculation of deemed employment payment
(1)
The amount of the deemed employment payment is the amount
resulting from the following steps—

Step 1

Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003
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Find (applying section 61F) the amount of the payment or benefit
mentioned in section 61D(1)(b).

Step 2

Deduct (applying Chapters 1 to 5 of Part 5) the amount of any
expenses met by the worker that would have been deductible from
5
the taxable earnings from the employment if—
(a)
the worker had been employed by the client to provide the
relevant services, and
(b)
the expenses had been met by the worker out of those
earnings.
10

If the result at this point is nil or a negative amount, there is no
deemed employment payment.

Step 3

Assume that the result of step 2 represents an amount together with
employer’s national insurance contributions on it, and deduct what
15
(on that assumption) would be the amount of those contributions.

The result is the deemed employment payment.
(2)
In step 2 of subsection (1), the reference to expenses met by the
worker includes, where the MSC is a partnership and the worker is a
member of the partnership, expenses met by the worker for and on
20
behalf of the partnership.
(3)
In step 2 of subsection (1), the expenses deductible include the
amount of any mileage allowance relief which the worker would
have been entitled to in respect of the use of a vehicle falling within
subsection (4) if—
25
(a)
the worker had been employed by the client to provide the
relevant services, and
(b)
the vehicle had not been a company vehicle (within the
meaning of Chapter 2 of Part 4).
(4)
A vehicle falls within this subsection if—
30
(a)
it is provided by the MSC for the worker, or
(b)
where the MSC is a partnership and the worker is a member
of the partnership, it is provided by the worker for the
purposes of the business of the partnership.
(5)
For the purposes of subsection (1) any necessary apportionment of
35
payments or benefits that are referable partly to the provision of the
relevant services and partly to other matters is to be made on a just
and reasonable basis.
61F
Sections 61D and 61E: application of rules relating to earnings from
employment
40
(1)
The following provisions apply for the purposes of sections 61D and
61E.
(2)
A “payment or benefit” means anything that, if received by an
employee for performing the duties of an employment, would be
general earnings from the employment.
45
(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

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Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003
93

(b)
in the case of a non-cash benefit, the cash equivalent of the
benefit.
(4)
The cash equivalent of a non-cash benefit is taken to be—
(a)
the amount that would be general earnings if the benefit were
general earnings from an employment, or
5
(b)
in the case of living accommodation, whichever is the greater
of that amount and the cash equivalent determined in
accordance with section 398(2).
(5)
A payment or benefit is treated as received—
(a)
in the case of a payment or cash benefit, when payment is
10
made of or on account of the payment or benefit;
(b)
in the case of a non-cash benefit, 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
15
(ii)
the benefit had been provided by reason of the
employment.
61G
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.
20
(2)
They apply as if—
(a)
the worker were employed by the MSC to provide the
relevant services, and
(b)
the deemed employment payment were a payment by the
MSC of earnings from that employment;
25

but this is subject to subsection (3).
(3)
No deduction under Part 5 (deductions allowed from employment
income) or section 232 (mileage allowance relief) may be made from
the deemed employment payment.
(4)
The worker is not chargeable to tax in respect of the deemed
30
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 worker were employed by the client to perform the
relevant services, and
35
(b)
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 United Kingdom,
40
(b)
the client being resident or ordinarily resident outside the
United Kingdom, and
(c)
the relevant services being provided outside the United
Kingdom.
(6)
Where the MSC is a partnership and the worker is a member of the
45
partnership, the deemed employment payment is treated as received