Introduction to indirect and third party relationships

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Introduction to indirect and third party relationships
  • IR35 and intermediaries
  • What rules need to be considered?

There are a variety of working relationships between workers and clients. The most common relationship we address in this module is that of employee and employer; however, there are also a variety of indirect and third party relationships where the work is not carried out by an employee of the ‘client’ ― the end user of the services. There is a wide range of working relationships and these can be complex in terms of PAYE treatment (references in this topic to PAYE include income tax, NIC and other payroll costs, such as the apprenticeship levy, as relevant). The most well-known example of a third party relationship is that of a worker with their own personal service company. They are the sole director and shareholder of that personal service company and the personal service company has a contract to provide services to the client. The worker therefore has no direct contractual relationship with the client.

Where there is a person, organisation or business in the supply chain between the worker and the client, this is known as an intermediary. A personal service company is an intermediary. Other common intermediaries include employment agencies and umbrella companies.

This diagram shows how an intermediary fits into the supply chain (highlighted with a red circle). This example shows the contractual, payment and working relationships where there is a worker with a personal service company providing services to a client:

In general, the PAYE treatment will only be affected where a person is providing their personal service. This means that the worker may be a named person or may be the only employee of a company. Where a company provides services and agrees the provision of services without it relating to a particular individual, this is likely to be out of scope. This means that a plumber working through their own personal service company will always need to consider

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