FINANCE BILL 2002: EXPLANATORY NOTE
CLAUSE 38: PROVISION OF SERVICES THROUGH AN INTERMEDIARY: MINOR AMENDMENTS
SUMMARY
1. This clause introduces some minor amendments to the rules in the Finance Act 2000 concerning the taxation of workers who provide their services to clients through intermediaries, such as personal service companies and partnerships. Those rules determined that, where workers meet the case law definition of an employee in relation to work done for their clients, they pay broadly the same tax and National Insurance Contributions (NICs) as an employee, even if they provide their services through an intermediary. The proposed amendments to the rules will ensure that workers providing their services through intermediaries will be in the same position as employees with regard to certain reliefs available to them. Parallel amendments are being made to the separate Social Security Regulations which introduced the same rules for NICs purposes.
2. These amendments mean that workers who are affected by the rules governing the provision of services through an intermediary will get the same level of relief that other employees are entitled to under the Mileage Allowances regime which was introduced in the 2001 Finance Act and which takes effect from 6 April 2002.
3. They also mean that partnerships which reimburse expenses a partner has incurred personally will be able to claim relief for those expenses in the same way as a service company.
4. And service companies which cease trading in the year are able to claim appropriate relief in their final Corporation Tax accounts for the deemed Schedule E payment calculation.
DETAILS OF THE CLAUSE
5. Clause 38 specifies the amendments to be made to the rules concerning the provision of services through intermediaries.
6. Subsection (1) indicates that the rules to be amended are those contained within Schedule 12 to the Finance Act 2000.
7. Subsection (2) states that the section of those rules dealing with how to calculate a deemed Schedule E Payment for a tax year (Schedule 12 Part II paragraph 7) should be amended to include two new sections on the treatment of ?reimbursed expenses? and ?mileage allowances?.
- Reimbursed expenses
- paragraph 7A(1) determines that relief should be given at the third step of the deemed Schedule E calculation for any amount spent by the worker and reimbursed by the intermediary, as well as any amount spent directly by the intermediary, which could have been claimed as a deductible expense by the worker if s/he had been directly employed by the client and met the cost themselves.
- paragraph 7A(2) brings within the category of allowable relief in 7A(1) any amount spent by the worker for and on behalf of an intermediary where that intermediary is a partnership - Mileage allowances
- paragraph 7B(1) determines that, where the intermediary provides a vehicle for the worker, relief should be given at the third step of the deemed Schedule E payment calculation for any amount to which the worker would have been entitled in the form of mileage allowance relief if s/he had been directly employed by the client and s/he had provided the vehicle themselves.
- paragraph 7B(2) deems a vehicle provided by a worker for the use of his/her intermediary partnership to have been provided by the intermediary partnership so as to extend relief due under paragraph 7B(1) to situations where the intermediary is a partnership.
- paragraph 7B(3) gives relief at step 7 of the deemed Schedule E payment calculation for exempt mileage allowance payments and passenger payments when made from the intermediary to the worker.
8. Subsection (3) amends paragraph 12(2) of Part 3 (supplementary provisions) of Schedule 12 to the Finance Act 2000 by including the date that a company ceases to trade as one of the possible earlier dates on which a deemed Schedule E payment might be treated as paid. This means that the company can claim appropriate relief for the payment in its final accounts.
9. Subsection (4) amends paragraph 18(3) of Part 3 (supplementary provisions) of Schedule 12 to the Finance Act 2000 which contains a special rule for calculating the profits of partnerships. This rule restricts the amount of Schedule D expenses that can be claimed. The amendment ensures that the new rules for motoring expenses are taken into account where applying this restriction.
10. Subsection (5) states that Clause 38 will come into effect on 6 April 2002, i.e for the years 2002/03 onwards.
BACKGROUND NOTE
11. The rules concerning the provision of services through an intermediary were introduced by Section 60 and Schedule 12 to the Finance Act 2000 for income tax purposes and by The Social Security Contributions (Intermediaries) Regulations 2000 and the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000 (Statutory Instruments numbers 727 and 728 respectively) for NICs purposes.
12. The draft Finance Bill 2002 Clause and the NICs Regulations were published on 15 March 2002 and are available on the Inland Revenue .
13. Section 57 and Schedule 12 of Finance Act 2001 introduced a new tax exemption for mileage allowance payments, up to the approved rate, paid by employers to their employees for undertaking qualifying business travel in their own vehicles. It also exempts payments of up to 5p per mile paid in respect of business passengers. Employees who do not receive any mileage allowance payments, or payments that are less than the approved rate, from their employers can claim tax relief up to that rate.