ESM3012 – Introduction: the position after 6 April 2000

Schedule 12 Finance Act 2000/Part 2 Chapter 8 ITEPA 2003

Social Security Contributions (Intermediaries) Regulations 2000 (SI 2000 No.727)

Before 6 April 2000, a worker could avoid being taxed and paying NICs as an employee by working through an intermediary, such as a company.

Under the intermediaries legislation, we consider what the relationship would have been between the client and worker for a particular engagement, if the intermediary had not existed. The legislation applies if the relationship would have been that of employer and employee had the worker been engaged directly.

The existing status tests (see ESM500 onwards), which are unchanged by this legislation, are used to decide whether a contract would have been a contract of service/employment but for the intermediary.

If the contract falls within the legislation, then the intermediary is responsible for operating PAYE and paying Class 1 NICs on all earnings from the engagement (known as a relevant engagement), after deducting a limited allowance for:

• expenses and capital allowances
• pension contributions
• secondary class 1 NICs, and
• in-year salary and taxable benefits

The resulting amount will:

• normally be treated as paid at the end of the tax year, and
• be taxed as a payment chargeable to income tax under Schedule E/as employment income and subject to Class 1 NICs.

For tax purposes, under S.7(2) and (3) ITEPA 2003 employment income and general earnings include any amount treated as earnings. Under S.7(5)(a) this specifically includes amounts treated as earnings under Part 2 Chapter 8 (the intermediaries legislation).