ESM10007 - off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: meaning of medium or large-sized non-public sector organisations: groups

Sections 60A; 60B; 60C; 60D; 60E: 60F of Chapter 8, Part 2 ITEPA 2003

Regulation 5A Social Security Contributions (Intermediaries) Regulations 2000

A group’s size is determined by the size of its parent company. In order to identify the size of a parent company you should aggregate the figures from all members together. Therefore, to determine the size of a company within a group, you add together all figures of the members within the group and the outcome will apply to all members. For example, in a medium-sized group, all the companies within it will be medium-sized for the purposes of the off-payroll working rules.

Figures from all members of the group are included irrespective of whether group members are resident in the UK or not, so the worldwide group is considered. Please see ESM10006 for the qualifying criteria.

These group rules also apply to overseas companies, limited liability partnerships and unregistered companies who are part of a group.

The person in receipt of a worker’s services within the group is the person who must make the status determination as well as meeting other client responsibilities.

For franchises, depending upon the structure of the business you may need to consider the group rules.

A corporate entity will qualify as small in its first financial year following incorporation for the purposes of Chapter 10, Part 2 ITEPA 2003, even if it is part of a group. The entity will be small until at least the beginning of the first tax year after the period for filing its accounts for the first financial year has ended. For that tax year the new entity would be considered under the group rules for the purposes of Chapter 10, Part 2 ITEPA 2003.

When small companies are acquired

When all or part of a small company is acquired, that company may no longer qualify as small for the purposes of Chapter 10, Part 2 ITEPA 2003.

When determining if a company qualifies as small for the purposes of Chapter 10, Part 2 ITEPA 2003 for a tax year, the financial year relevant to the tax year concerned is considered. This is a financial year where the period for filing ends before the tax year concerned (see ESM1006 for more detail). Once size is determined for the purposes of Chapter 10, Part 2 ITEPA 2003 for a tax year, that size applies for the whole of the tax year concerned and is then reconsidered each year. Therefore, where an acquisition has occurred, it will not affect size for Chapter 10, Part 2 ITEPA 2003 purposes for the rest of the tax year during which the company was acquired but could affect subsequent tax years.

If all or part of a company is acquired and that company becomes part of a group for Companies Act 2006 purposes, then for Chapter 10, Part 2 ITEPA 2003 purposes it should follow the guidance on this page. The size of the group’s parent will determine whether the acquired company qualifies as small for the purposes of Chapter 10, Part 2 ITEPA 2003.

If all or part of a company is acquired and that company does not become part of the group for Companies Act 2006 purposes, the companies could still be connected. The rules at ESM10008 should be considered when determining size for a tax year under Chapter 10, Part 2 ITEPA 2003.

Wholly overseas clients

A client who has no UK connection immediately before the beginning of the tax year because it is not UK resident and does not have a permanent establishment in the UK does not need to consider Chapter 10, Part 2 ITEPA 2003 and therefore does not need to consider its size under these rules. In this scenario, as the engagement does not fall within scope of Chapter 10, Part 2 ITEPA 2003, the worker’s intermediary must consider whether Chapter 8, Part 2 ITEPA 2003 applies

Chapter 10, Part 2 ITEPA 2003 uses the definition of permanent establishment at section 1141 Corporation Tax Act 2010. For the purposes of Chapter 10, the reference to company in the Corporation Tax Act should also be read as a reference to persons that are not companies. A permanent establishment includes a fixed place of business which includes, amongst others, a branch, an office or a factory. A permanent establishment can also be any agent who has, and habitually exercises, authority to do business on behalf of the client. INTM153060 gives some further detail. If a worker provides services to an offshore client through a UK resident intermediary, that UK intermediary is not a permanent establishment of the offshore client for the purposes of Chapter 10, Part 2 ITEPA 2003.

Please note as explained above, for clients within scope of Chapter 10, Part 2 ITEPA 2003, when determining the group’s size, all companies within the group are included regardless of where they are resident.

Groups, UK residency and permanent establishments

For more information on whether a company is UK resident see INTM120000.

Whether a UK group member of an overseas group is considered to be a permanent establishment of one or other company within that group is a question of fact. Chapter 10, Part 2 ITEPA 2003 uses the definition of permanent establishment at section 1141 Corporation Tax Act 2010. A UK group member is not a permanent establishment solely on the basis that it is a member of an overseas group.

To be a permanent establishment of an overseas client, the UK group member needs to habitually exercise authority to do business on behalf of that overseas client. Exercising authority would be more than simply trading under a group name, it would include actions such as the ability to conclude contracts on behalf of the client. If a group member is not a permanent establishment and a client has no other UK connection, then that client does not need to consider Chapter 10, Part 2 ITEPA 2003. The worker’s intermediary must consider whether Chapter 8, Part 2 ITEPA 2003 applies.