Finance Act 2000

Part I Application of this Schedule

Engagements to which this Schedule applies

1 (1) This Schedule applies where—

(a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),

(b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), and

(c) the circumstances are such that, 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.

(2) In sub-paragraph (1)(a) “business” includes any activity carried on—

(a) by a government or public or local authority (in the United Kingdom or elsewhere), or

(b) by a body corporate, unincorporated body or partnership.

(3) The reference in sub-paragraph (1)(b) to a “third party” includes a partnership or unincorporated body of which the worker is a member.

(4) The circumstances referred to in sub-paragraph (1)(c) 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.

(5) The fact that the worker holds an office with the client does not affect the application of this Schedule.

Worker treated as receiving Schedule E income

2 (1) If, in the case of an engagement to which this Schedule applies, in any tax year—

(a) the conditions specified in paragraph 3, 4 or 5 are met in relation to the intermediary, and

(b) the worker, or an associate of the worker—

(i) receives from the intermediary, directly or indirectly, a payment or other benefit that is not chargeable to tax under Schedule E, or

(ii) has rights entitling him, or which in any circumstances would entitle him, to receive from the intermediary, directly or indirectly, any such payment or other benefit,

the intermediary is treated as making to the worker in that year, and the worker is treated as receiving in that year, a payment chargeable to income tax under Schedule E (“the deemed Schedule E payment”).

(2) The deemed Schedule E payment is treated as made at the end of the tax year, unless paragraph 12 applies (earlier date of deemed payment in certain cases).

(3) A single payment is treated as made in respect of all engagements in relation to which the intermediary is treated as making a payment to the worker in the tax year.

These are referred to in this Schedule as “the relevant engagements” in relation to a deemed Schedule E payment.

Conditions of liability where intermediary is a company

3 (1) Where the intermediary is a company the conditions are that the intermediary is not an associated company of the client that falls within sub-paragraph (2) and either—

(a) the worker has a material interest in the intermediary, or

(b) the payment or benefit mentioned in paragraph 2(1)(b)—

(i) is received or receivable by the worker directly from the intermediary, and

(ii) can reasonably be taken to represent remuneration for services provided by the worker to the client.

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

(a) of the worker, or

(b) of the worker and another person.

(3) A worker is treated as having a material interest in a company if—

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

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

has a material interest in the company.

(4) For this purpose a material interest means—

(a) beneficial ownership of, or the ability to control, directly or through the medium of other companies or by any other indirect means, more than 5% of the ordinary share capital of the company; or

(b) possession of, or entitlement to acquire, rights entitling the holder to receive more than 5% of any distributions that may be made by the company; or

(c) where the company is a close company, possession of, or entitlement to acquire, rights that would in the event of the winding up of the company, or in any other circumstances, entitle the holder to receive more than 5% of the assets that would then be available for distribution among the participators.

(5) In sub-paragraph (4)(c) “participator” has the meaning given by section 417(1) of the Taxes Act 1988.

Conditions of liability where intermediary is a partnership

4 (1) Where the intermediary is a partnership the conditions are as follows.

(2) In relation to payments or benefits received or receivable by the worker as a member of the partnership the conditions are—

(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) that most of the profits of the partnership concerned derive from the provision of services under engagements to which this Schedule applies—

(i) to a single client, or

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

(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 this Schedule applies.

In paragraph (a) “relative” means husband or wife, parent or remoter forebear, child or remoter issue, or brother or sister.

(3) In relation to payments or benefits received or receivable by the worker otherwise than as a member of the partnership, the conditions are that the payment or benefit—

(a) is received or receivable by the worker directly from the intermediary, and

(b) can reasonably be taken to represent remuneration for services provided by the worker to the client.

Conditions of liability where intermediary is an individual

5 Where the intermediary is an individual the conditions are that the payment or benefit—

(a) is received or receivable by the worker directly from the intermediary, and

(b) can reasonably be taken to represent remuneration for services provided by the worker to the client.

Exception of certain payments subject to deduction of tax

6 This Schedule does not apply to payments subject to deduction of tax under section 555 of the Taxes Act 1988 (payments to non-resident entertainers and sportsmen).