ESM10003 - off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: conditions of liability

Sections 61N, 61O and 61P Chapter 10, Part 2 ITEPA 2003

Regulations 14, 15 and 16 Social Security Contributions (Intermediaries) Regulations 2000

This legislation will only apply where the worker’s intermediary satisfies any one of three specific conditions set out at A to C below, and is in receipt of a chain payment. This page provides further details of each of the conditions which will vary depending on the form of the intermediary.

Condition A
  • The intermediary is a company,
  • is not an associated company of the client as set out below, and
  • either:
    • the worker has a material interest in the intermediary as set out below, or
    • The worker has a non-material interest in the intermediary and other conditions are met (see ESM10003A for detailed information on this aspect)

Note – Chapter 10 should not apply where an individual performs services for a client and that individual is already engaged under a contract of employment and their earnings are subject to PAYE by another party, other than that individual’s intermediary, in that supply chain. For example, if a worker is legitimately employed by an agency and that agency operates PAYE, Chapter 10 should not be applied where that worker performs services to a client.

For this condition ’associated company’ has the meaning given by section 449 Corporation Tax Act (CTA) 2010. A company is associated with the client if both the intermediary and the client are under the control of the worker, or the worker and other persons.

’Material interest’ has the meaning given by section 51(4) and (5) ITEPA 2003. The worker is treated as having a material interest in the intermediary if:

  • the worker alone, or with one or more associates of the worker, or
  • an associate of the worker, with or without other associates of the worker

has a material interest in the intermediary.

Material interest is:

  • 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,
  • 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
  • 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.

’Participator’ has the meaning given by section 454 of CTA 2010.

Condition B
  • The intermediary is a partnership,
  • the worker is a member of the partnership,
  • the provision of the services is by the worker as a member of the partnership, and
  • one of (1)-(3) below is met:
    1. the worker, alone or with one or more relatives, is entitled to 60% or more of the profits of the partnership,
    2. most of the profits of the partnership derive from the provision of services under engagements to which either Chapters 8 or 10 ITEPA 2003 applies:
      • to a single client, or
      • to a single client together with associates of that client
    3. 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 either Chapter 8 or 10 ITEPA 2003 applies.

For the purposes of (1) ‘relative’ means spouse, civil partner, parent, sibling, child or remoter relation in the direct line.

Two people living together as if they were a married couple or civil partners are treated as if they were married to, or civil partners of, each other.

Condition C
  • The intermediary is an individual