ESM10009 - off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: meaning of medium or large-sized non-public sector organisations: joint ventures

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

Regulation 5A Social Security Contributions (Intermediaries) Regulations 2000

The joint venture size rules apply if at the end of the financial year a company is jointly controlled (according to International Accountancy Standard 31) by two or more other persons, and one or more of the other persons are undertakings. ‘Other persons’ means a person who is not the joint venture entity.

Undertaking is defined by section 1161(1) Companies Act 2006 as:

‘…(a) a body corporate or partnership, or

(b) an unincorporated association carrying on a trade or business, with or without a view to profit.’

If the company is a parent of a group, the undertakings are treated as members of the group that the company heads.

Where the company is not a parent company, for the purposes of the size test the company and undertakings together are treated as a group and the company is treated as the parent of that group.

In both instances the size of the undertaking will be determined by the size of the parent company following the rules detailed in ESM10007.

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

EXAMPLE

The Robson Partnership and Smith Partnership decide to start up a joint venture company, Robson and Smith Ltd. At the end of the financial year the partnerships each hold an equal 50% stake in Robson and Smith Ltd, and so have joint control. Robson and Smith Ltd is not a parent company but is treated as such, and all three are treated as members of the same group for the purposes of determining size. If any of the Robson Partnership, the Smith Partnership or Robson and Smith Ltd use the services of a worker working through an intermediary, they must consider Chapter 10 if the joint venture is not small.

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.