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Income
Tax (Earnings and Pensions) Act 2003 | |
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2003
Chapter 1 -
continued | |
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PART
2,
EMPLOYMENT
INCOME:
CHARGE
TO TAX -
continued | |
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CHAPTER
8 |
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APPLICATION OF PROVISIONS TO WORKERS UNDER ARRANGEMENTS MADE BY INTERMEDIARIES (see note 1) |
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48 (see note 2) |
Scope
of this Chapter |
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(1)
This Chapter has effect with respect to the provision of services through
an intermediary. |
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(2)
Nothing in this Chapter- |
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(a)
affects the operation of Chapter 7 of this Part,
or |
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(b)
applies to payments subject to deduction of tax under section 555 of ICTA
(payments to non-resident entertainers and
sportsmen). |
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49 |
Engagements
to which this Chapter applies |
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(1)
This Chapter applies where- |
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(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"), |
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(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 |
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(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. |
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(2)
In subsection (1)(a) "business" includes any activity carried on-
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(a)
by a government or public or local authority (in the United Kingdom or
elsewhere), or |
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(b)
by a body corporate, unincorporated body or
partnership. |
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(3)
The reference in subsection (1)(b) to a "third party" includes a
partnership or unincorporated body of which the worker is a
member. |
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(4)
The circumstances referred to in subsection (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. |
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(5)
In this Chapter "engagement to which this Chapter applies" means any such
provision of services as is mentioned in subsection
(1). |
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50 |
Worker
treated as receiving earnings from employment |
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(1)
If, in the case of an engagement to which this Chapter applies, in any tax
year- |
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(a)
the conditions specified in section 51, 52 or 53 are met in relation to
the intermediary, and |
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(b)
the worker, or an associate of the worker- |
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(i)
receives from the intermediary, directly or indirectly, a payment or
benefit that is not employment income, or |
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(ii)
has rights which entitle, or which in any circumstances would entitle, the
worker or associate to receive from the intermediary, directly or
indirectly, any such payment or benefit, |
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the
intermediary is treated as making to the worker, and the worker is treated
as receiving, in that year a payment which is to be treated as earnings
from an employment ("the deemed employment
payment"). |
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(2)
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. |
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(3)
The deemed employment payment is treated as made at the end of the tax
year, unless section 57 applies (earlier date of deemed payment in certain
cases). |
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(4)
In this Chapter "the relevant engagements", in relation to a deemed
employment payment, means the engagements mentioned in subsection
(2). |
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51 (see note 5) |
Conditions
of liability where intermediary is a company |
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(1)
Where the intermediary is a company the conditions are that the
intermediary is not an associated company of the client that falls within
subsection (2) and either- |
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(a)
the worker has a material interest in the intermediary,
or |
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(b)
the payment or benefit mentioned in section 50(1)(b)-
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(i)
is received or receivable by the worker directly from the intermediary,
and |
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(ii)
can reasonably be taken to represent remuneration for services provided by
the worker to the client. |
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(2)
An associated company of the client falls within this subsection if it is
such a company by reason of the intermediary and the client being under
the control- | |
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(a)
of the worker, or |
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(b)
of the worker and other persons. |
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(3)
A worker is treated as having a material interest in a company if-
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(a)
the worker, alone or with one or more associates of the worker,
or |
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(b)
an associate of the worker, with or without other such
associates, |
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has
a material interest in the company. |
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(4)
For this purpose a material interest means-
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(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 |
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(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 |
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(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. |
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(5)
In subsection (4)(c) "participator" has the meaning given by section
417(1) of ICTA. |
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52 |
Conditions
of liability where intermediary is a partnership |
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(1)
Where the intermediary is a partnership the conditions are as
follows. |
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(2)
In relation to any payment or benefit received or receivable by the worker
as a member of the partnership the conditions are-
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(a)
that the worker, alone or with one or more relatives, is entitled to 60%
or more of the profits of the partnership; or |
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(b)
that most of the profits of the partnership concerned derive from the
provision of services under engagements to which this Chapter applies-
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(i)
to a single client, or |
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(ii)
to a single client together with associates of that client;
or |
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(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 Chapter
applies. |
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In
paragraph (a) "relative" means husband or wife, parent or child or remoter
relation in the direct line, or brother or
sister. |
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(3)
In relation to any payment or benefit received or receivable by the worker
otherwise than as a member of the partnership, the conditions are that the
payment or benefit- |
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(a)
is received or receivable by the worker directly from the intermediary,
and |
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(b)
can reasonably be taken to represent remuneration for services provided by
the worker to the client. |
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53 |
Conditions
of liability where intermediary is an individual |
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Where
the intermediary is an individual the conditions are that the payment or
benefit- |
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(a)
is received or receivable by the worker directly from the intermediary,
and |
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(b)
can reasonably be taken to represent remuneration for services provided by
the worker to the client. |
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54 (see note 9) |
Calculation
of deemed employment payment |
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(1)
The amount of the deemed employment payment for a tax year ("the year") is
the amount resulting from the following steps-
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Step
1 |
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Find
(applying section 55) the total amount of all payments and benefits
received by the intermediary in the year in respect of the relevant
engagements, and reduce that amount by 5%. |
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Step
2 |
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Add
(applying that section) the amount of any payments and benefits received
by the worker in the year in respect of the relevant engagements,
otherwise than from the intermediary, that- |
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(a)
are not chargeable to income tax as employment income,
and |
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(b)
would be so chargeable if the worker were employed by the
client. |
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Step
3 |
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Deduct
(applying Chapters 1 to 5 of Part 5) the amount of any expenses met in the
year by the intermediary that would have been deductible from the taxable
earnings from the employment if- |
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(a)
the worker had been employed by the client,
and |
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(b)
the expenses had been met by the worker out of those
earnings. |
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If
the result at this or any later point is nil or a negative amount, there
is no deemed employment payment. |
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Step
4 |
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Deduct
the amount of any capital allowances in respect of expenditure incurred by
the intermediary that could have been deducted from employment income
under section 262 of CAA 2001 (employments and offices) if the worker had
been employed by the client and had incurred the
expenditure. |
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Step
5 |
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Deduct
any contributions made in the year for the benefit of the worker by the
intermediary to a scheme approved under Chapter 1 or 4 of Part 14 of ICTA
that if made by an employer for the benefit of an employee would not be
chargeable to income tax as income of the
employee. |
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This
does not apply to excess contributions made and later
repaid. |
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Step
6 |
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Deduct
the amount of any employer's national insurance contributions paid by the
intermediary for the year in respect of the
worker. |
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Step
7 |
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Deduct
the amount of any payments and benefits received in the year by the worker
from the intermediary- |
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(a)
in respect of which the worker is chargeable to income tax as employment
income, and |
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(b)
which do not represent items in respect of which a deduction was made
under step 3. |
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Step
8 |
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Assume
that the result of step 7 represents an amount together with employer's
national insurance contributions on it, and deduct what (on that
assumption) would be the amount of those
contributions. |
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The
result is the deemed employment payment. |
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(2)
If section 559 of ICTA applies (sub-contractors in the construction
industry: payments to be made under deduction), the intermediary is
treated for the purposes of step 1 of subsection (1) as receiving the
amount that would have been received had no deduction been made under that
section. |
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(3)
In step 3 of subsection (1), the reference to expenses met by the
intermediary includes- |
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(a)
expenses met by the worker and reimbursed by the intermediary,
and |
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(b)
where the intermediary is a partnership and the worker is a member of the
partnership, expenses met by the worker for and on behalf of the
partnership. |
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(4)
In step 3 of subsection (1), the expenses deductible include the amount of
any mileage allowance relief for the year which the worker would have been
entitled to in respect of the use of a vehicle falling within subsection
(5) if- |
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(a)
the worker had been employed by the client,
and |
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(b)
the vehicle had not been a company vehicle (within the meaning of Chapter
2 of Part 4). |
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(5)
A vehicle falls within this subsection if-
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(a)
it is provided by the intermediary for the worker,
or |
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(b)
where the intermediary is a partnership and the worker is a member of the
partnership, it is provided by the worker for the purposes of the business
of the partnership. |
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(6)
Where, on the assumptions mentioned in paragraphs (a) and (b) of step 3 of
subsection (1), the deductibility of the expenses is determined under
sections 337 to 342 (travel expenses), the duties performed under the
relevant engagements are treated as duties of a continuous employment with
the intermediary. | |
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(7)
In step 7 of subsection (1), the amounts deductible include any payments
received in the year from the intermediary that-
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(a)
are exempt from income tax by virtue of section 229 or 233 (mileage
allowance payments and passenger payments),
and |
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(b)
do not represent items in respect of which a deduction was made under step
3. |
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(8)
For the purposes of subsection (1) any necessary apportionment is to be
made on a just and reasonable basis of amounts received by the
intermediary that are referable- |
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(a)
to the services of more than one worker, or |
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(b)
partly to the services of the worker and partly to other
matters. |
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55 |
Application
of rules relating to earnings from employment |
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(1)
The following provisions apply in relation to the calculation of the
deemed employment payment. |
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(2)
A "payment or benefit" means anything that, if received by an employee for
performing the duties of an employment, would be earnings from the
employment. |
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(3)
The amount of a payment or benefit is taken to be-
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(a)
in the case of a payment or cash benefit, the amount received,
and |
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(b)
in the case of a non-cash benefit, the cash equivalent of the
benefit. |
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(4)
The cash equivalent of a non-cash benefit is taken to be-
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(a)
the amount that would be earnings if the benefit were earnings from an
employment, or |
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(b)
in the case of living accommodation, whichever is the greater of that
amount and the cash equivalent determined in accordance with section
398(2). |
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(5)
A payment or benefit is treated as received-
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(a)
in the case of a payment or cash benefit, when payment is made of or on
account of the payment or benefit; |
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(b)
in the case of a non-cash benefit that is calculated by reference to a
period within the tax year, at the end of that
period; |
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(c)
in the case of a non-cash benefit that is not so calculated, when it would
have been treated as received for the purposes of Chapter 4 or 5 of this
Part (see section 19 or 32) if- |
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(i)
the worker had been an employee, and |
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(ii)
the benefit had been provided by reason of the
employment. |
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56 (see note 13) |
Application
of Income Tax Acts in relation to deemed employment |
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(1)
The Income Tax Acts (in particular, the PAYE provisions) apply in relation
to the deemed employment payment as
follows. |
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(2)
They apply as if- |
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(a)
the worker were employed by the intermediary,
and |
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(b)
the relevant engagements were undertaken by the worker in the course of
performing the duties of that employment. |
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(3)
The deemed employment payment is treated in particular-
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(a)
as taxable earnings from the employment for the purpose of securing that
any deductions under Chapters 2 to 6 of Part 5 do not exceed the deemed
employment payment; and |
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(b)
as taxable earnings from the employment for the purposes of section
232. |
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(4)
The worker is not chargeable to tax in respect of the deemed employment
payment if, or to the extent that, by reason of any combination of the
factors mentioned in subsection (5), the worker would not be chargeable to
tax if- |
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(a)
the client employed the worker, |
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(b)
the worker performed the services in the course of that employment,
and |
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(c)
the deemed employment payment were a payment by the client of earnings
from that employment. |
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(5)
The factors are- |
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(a)
the worker being resident, ordinarily resident or domiciled outside the
United Kingdom, |
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(b)
the client being resident or ordinarily resident outside the United
Kingdom, and |
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(c)
the services in question being provided outside the United
Kingdom. |
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(6)
Where the intermediary is a partnership or unincorporated association, the
deemed employment payment is treated as received by the worker in the
worker's personal capacity and not as income of the partnership or
association. |
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(7)
Where- |
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(a)
the worker is resident in the United Kingdom, |
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(b)
the services in question are provided in the United Kingdom,
and |
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(c)
the client or employer carries on business in the United
Kingdom, |
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the
intermediary is treated as having a place of business in the United
Kingdom, whether or not it in fact does
so. |
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(8)
The deemed employment payment is treated as relevant earnings of the
worker for the purposes of section 644 of ICTA (relevant earnings for
purposes of permissible pension
contributions). |
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57 (see note 14) |
Earlier
date of deemed employment payment in certain cases |
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(1)
If in any tax year- |
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(a)
a deemed employment payment is treated as made,
and |
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(b)
before the date on which the payment would be treated as made under
section 50(2) any relevant event (as defined below) occurs in relation to
the intermediary, |
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the
deemed employment payment for that year is treated as having been made
immediately before that event or, if there is more than one, immediately
before the first of them. |
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(2)
Where the intermediary is a company the following are relevant events-
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(a)
the company ceasing to trade; |
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(b)
where the worker is a member of the company, the worker ceasing to be such
a member; |
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(c)
where the worker holds an office with the company, the worker ceasing to
hold such an office; |
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(d)
where the worker is employed by the company, the worker ceasing to be so
employed. |
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(3)
Where the intermediary is a partnership the following are relevant events-
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(a)
the dissolution of the partnership or the partnership ceasing to trade or
a partner ceasing to act as such; |
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(b)
where the worker is employed by the partnership, the worker ceasing to be
so employed. |
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(4)
Where the intermediary is an individual and the worker is employed by the
intermediary, it is a relevant event if the worker ceases to be so
employed. |
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(5)
The fact that the deemed employment payment is treated as made before the
end of the tax year does not affect what receipts and other matters are
taken into account in calculating its
amount. |
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58 (see note 15) |
Relief
in case of distributions by intermediary |
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(1)
A claim for relief may be made under this section where the intermediary-
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(a)
is a company, |
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(b)
is treated as making a deemed employment payment in any tax year,
and |
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(c)
either in that tax year (whether before or after that payment is treated
as made), or in a subsequent tax year, makes a distribution (a "relevant
distribution"). |
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