Implications for intermediaries

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Implications for intermediaries
  • What is an intermediary?
  • The contracts
  • Office-holders
  • The client
  • Agency contracts
  • Tax obligations

Many people supply their services to clients, not directly as a self-employed person, but via a company. The tax and NICs advantages of this way of working are significant. See the Introduction to personal service companies guidance note.

Since April 2000, anti-avoidance legislation applies to individuals who would be employees of their clients if they did not use an intermediary, see the Employed or self-employed guidance note. For the general rules, see the Personal service company rules guidance note and the Intermediaries and the public sector guidance note.

What is an intermediary?

The legislation talks about an ‘intermediary’ between the worker and the client. Normally this intermediary is a service company, but services provided via a partnership or by another individual are also caught.

ITEPA 2003, ss 49, 61M

However, arrangements involving partnerships and individuals are rare in practice. As a result, this note assumes that the intermediary is a company, unless otherwise stated.

ITEPA 2003, ss 52, 53, 61N; ESM8055; ESM8060
The contracts

The legislation applies where a contract of employment or (from 2013/14 onwards) a contract to hold an office would have existed between the worker and the client had there been no service company.

The legislation is thus based on the fiction that there is a contract directly between the client and the worker. This is known as the ‘notional’ or ‘hypothetical’ contract. If this notional contract is one of employment or one to hold an office, the rules will apply.

ITEPA 2003, ss 49(1), 61M(1)

For a summary of the status tests which determine whether a contract is one of employment or self-employment, see the Employed or self-employed guidance note.

It is therefore necessary to first work out what would be in an individual’s notional contract, and then compare these terms to the guidance provided by