The purpose of the proposed new rules
remains to remove opportunities for the avoidance of
tax and Class 1 National Insurance Contributions
(NICs) by the use of intermediaries, such as service
companies or partnerships, in circumstances where an
individual worker would otherwise be an employee of
the client or the income would be income from an office
held by the worker.
The rules are not intended to prevent workers from providing
their services through intermediaries. However, they
will help to discourage the practice of routing engagements
through intermediaries simply in order to take advantage
of a tax and NICs regime which may be more favourable
than that which would apply if the worker were to be
taken on as a direct employee of the client.
Identifying engagements where the new rules will apply:
It is proposed that the new rules
will:
- apply to engagements (‘relevant engagements’)
where:
(a) a worker provides services under a contract
between a client and an intermediary;
and
(b) but for the presence of the intermediary, the income
arising would have been treated as coming from an office
or employment held by the worker under the existing
rules used to determine the boundary between employment
and self-employment income for tax/NICs purposes, if
the individual had contracted directly with the client.
Guidance
on the existing rules is included in Inland
Revenue leaflet IR56 (available on the Internet at
www.inlandrevenue.gov.uk). The rules will be applied
in respect of each engagement, in the same way as
they apply to individuals
who operate without intermediaries.
- not apply to such engagements
where :
(a) the client is an
individual and not in business (so services for a householder
should not be affected);
or
(b) the worker only receives income from the intermediary
in a form which falls within Schedule E/Class
1 (e.g. straightforward employees of consultancy firms)
and has no other rights to income or capital from the
intermediary. Exceptions will be made for income from
certain investments (e.g. holdings of small numbers
of shares in theemploying company). Similar rules
are under consideration to exempt partners in larger
partnerships.
