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Who is likely to be affected?
- The measure will apply to domestic workers,
such as nannies or butlers, who provide services
through an intermediary (usually a service
company).
General description of the measure
- The measure closes an avoidance device
whereby domestic workers, who would otherwise
be directly employed by the person to whom
they provide their services, operate instead
through an intermediary, such as a company.
Operative date
- For income tax purposes, the changes will
take effect for income received in respect
of services provided after 9 April 2003. Changes
will also be made to the NICs rules to bring
them into line with tax. Regulations having
this effect will be introduced following Royal
Assent to the Finance Bill.
Current law and proposed revisions
- The measure extends the scope of the intermediaries
legislation. It removes the limitation in
the legislation that currently restricts its
application to those providing personal services
to a business being carried on by a client.
The measure will therefore bring within the
scope of the intermediaries legislation those
domestic workers who provide their services
through an intermediary, such as a company.
- The intermediaries legislation ensures
that workers who would be treated as employees
if engaged directly rather than through, say,
a company cannot avoid paying tax and National
Insurance contributions on broadly the same
basis as other employees. The practice of
using companies has become common for many
people who work for a business carried on
by another person.
- Where an engagement comes within the scope
of the legislation, the intermediary will
operate PAYE and pay NICs on any payments
of salary during the year in the usual way.
An additional amount of tax and NICs may have
to be paid on a "deemed payment".
The details of the deemed payment calculation
are set out in the legislation and guidance
on how to calculate it can be found in our
leaflet IR2003.
- The measure will extend this treatment
to workers engaged through an intermediary
in a domestic capacity. It will apply for
income tax purposes to income received by
the intermediary in 2003/04 relating to services
provided after 9 April 2003. Changes will
be made for national insurance purposes through
NICs regulations that will be introduced after
the Finance Bill receives Royal Assent. The
NICs changes will apply to income received
by the intermediary for services provided
on or after the date that the regulations
take effect. This will mean that separate
deemed payment calculations for the year ended
5 April 2004 will be required for income tax
and National Insurance purposes.
- If you have any questions about this change,
please contact the Public Enquiry Unit on
020 7438 6420 to 6425
www.inlandrevenue.gov.uk
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