Income and Corporation Taxes Act 1988

559 Deductions on account of tax etc. from payments to certain sub-contractors. U.K.

(1) M1 Subject to [F1 the following provisions of this section], where a contract relating to construction operations is not a contract of employment but—

(a) one party to the contract is a sub-contractor; and

(b) another party to the contract (“the contractor”) either is a sub-contractor under another such contract relating to all or any of the construction operations or is a person to whom section 560(2) applies,

this section shall apply to any payments which are made under the contract and are so made by the contractor to—

(i) the sub-contractor;

(ii) a person nominated by the sub-contractor or the contractor; or

(iii) a person nominated by a person who is a sub-contractor under another such contract relating to all or any of the construction operations.

[F2 (1A) Subsection (1) above shall not apply to any payment made under the contract in question that is [F3 treated as earnings from an employment by virtue of Chapter 7 of Part 2 of ITEPA 2003 (agency workers)].]

(2) Subsection (1) above shall not apply to any payment made under the contract in question if the person to whom it is made or, if it is made to a nominee, each of the following persons, that is to say, the nominee, the person who nominated him and the person for whose labour (or, where that person is a company, for whose employees’ or officers’ labour) the payment is made, is excepted from this section in relation to those payments by virtue of section 561.

(3) F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F5 (3A) Subsection (1) above shall not apply to a payment made under any contract if such conditions as may be prescribed in regulations made by the Board are satisfied in relation to the payment and the person making it.]

(4) M2 On making a payment to which this section applies the contractor shall deduct from it a sum equal to [F6 the relevant percentage] of so much of the payment as is not shown to represent the direct cost to any other person of materials used or to be used in carrying out the construction operations to which the contract under which the payment is to be made relates; F7 . . .

[F8 (4A) In subsection (4) above “the relevant percentage”, in relation to a payment, means such percentage (not exceeding the percentage which is the basic rate for the year of assessment in which the payment is made) as the Treasury may by order determine.]

(5) F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F10 (5A) F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F11 (6) M3 References in section 1(1) of the Preferential Payments (Bankruptcies and Arrangements) Act (Northern Ireland) 1964 to sums due on account of tax deductions for any period shall be construed as including references to any amounts due from any person in respect of deductions required to be made by him under this section].

(7) M4 For the purposes of this Chapter a payment (including a payment by way of loan) that has the effect of discharging an obligation under a contract relating to construction operations shall be taken to be made under the contract; and if—

(a) the obligation is to make a payment to a person within subsection (1)(i) to (iii) above, but

(b) the payment discharging that obligation is made to a person not within those paragraphs,

the payment shall for those purposes be taken to be made to the first-mentioned person.

(8) F12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Words in s. 559(1) substituted (with effect in accordance with s. 55(3) of the amending Act) by Finance Act 1998 (c. 36), s. 55(2)

F2 S. 559(1A) inserted (with effect in accordance with s. 55(3) of the amending Act) by Finance Act 1998 (c. 36), s. 55(2)

F3 Words in s. 559(1A) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 58 (with Sch. 7)

F4 S. 559(3) repealed (with effect in accordance with Sch. 29 Pt. 8(21) Notes 1, 5 of the repealing Act) by Finance Act 1995 (c. 4), Sch. 27 para. 1(2), Sch. 29 Pt. 8(21); S.I. 1998/2620, art. 3

F5 S. 559(3A) inserted (with effect in accordance with Sch. 27 para. 1(4) of the amending Act) by Finance Act 1995 (c. 4), Sch. 27 para. 1(3); S.I. 1998/2620, art. 3

F6 Words in s. 559(4) substituted (with effect in accordance with the amending provision) by Finance Act 1995 (c. 4), s. 139(1); S.I. 2000/922, art. 2

F7 Words in s. 559(4) repealed (with effect in accordance with s. 40(4) of the repealing Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(1), Note

F8 S. 559(4A) inserted (with effect in accordance with the amending provision) by Finance Act 1995 (c. 4), s. 139(1); S.I. 2000/922, art. 2

F9 S. 559(5)(5A) repealed (with effect in accordance with s. 40(4) of the repealing Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(1), Note

F10 S. 559(5A) inserted (with effect in accordance with Sch. 8 para. 2(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 8 para. 2(1)

F11 S. 559(6) repealed (N.I.) (1.10.1991) by S.I. 1989/2404, art. 382, Sch. 10; S.R. 1991/411, art. 2

F12 S. 559(8) repealed (with effect in accordance with s. 40(4) of the repealing Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(1), Note

Modifications etc. (not altering text)

C1 See—1970(M) s.62(1A)—priority of claim for tax.1970(M) s.63(3)—recovery of tax in Scotland.1970(M) s.64(1A)—priority in cases of poinding in Scotland.

C2 See 1988(F) s.130(7)(d)—payment of outstanding tax by migrating companies.

C3 S. 559(4) modified (29.4.1996) by Finance Act 1996 (c. 8), s. 72(3)

C4 S. 559(4) modified (19.3.1997) by Finance Act 1997 (c. 16), s. 54(5)

C5 See Insolvency (Northern Ireland) Order 1989, Art.381(2)and Sch.9 para.61and Art.382and Sch.10 (S.I. 1989 No.2405—not reproduced)

Marginal Citations

M1 Source-1975 (No.2) s.69(1), 70A(2); 1982 Sch.8 5

M2 Source-1975 (No.2) s.69(4), (5); 1987 s.23

M3 Source-1975 (No.2) Sch.12 Pt.I 2(2); 1980 Sch.8 4(3); 1982 Sch.8 8

M4 Source-1972 s.71(5); 1982 Sch.8 6