ESM5660 - Employment intermediaries travel expense provisions: liability of the parties and transfer of debt provisions
Income Tax (Earnings and Pensions) Act 2003 (ITEPA), Part 5, Chapter 2, sections 337 to 339A, and Part 11, Chapter 3, section 688B
Social Security (Contributions) Regulations 2001, Schedule 3, Part 8, paragraphs 3, 3ZA and 3ZB
Income Tax (Pay as You Earn) Regulations 20003, Part 4, Chapter 3B
In the first instance, it is the responsibility of the employment intermediary to confirm whether or not section 339A of ITEPA and the equivalent NICs provisions apply in respect of a particular engagement. Liability rests with the employment intermediary who is responsible for deducting, accounting for and paying any tax and NICs due in accordance with the PAYE regulations. If the intermediary fails to do so, then HMRC can issue:
- Income Tax determinations under regulation 80 of the Income Tax (PAYE) Regulations 2003, and
- NICs decisions (under section 8 of the Social Security (Transfer of Functions) Act 1999 in Great Britain)
For individuals and partnerships there will be personal liability as with any other PAYE Income Tax and NICs debt. For companies the liability will initially lie with the company.
Transfer of debt provisions
When an employment intermediary is a company a relevant PAYE debt which is not paid by the ‘relevant date’ may be transferred to the director(s) or officer(s) of the company, or in the case of an MSC those parties specified in section 688A ITEPA.
The ‘relevant date’ in relation to a relevant PAYE debt is the date on which the first payment is due on which PAYE is not accounted for.
When the provisions of the employment intermediaries travel expenses haven’t been correctly applied, the relevant PAYE debt is the amount of unpaid tax not accounted for by the company in accordance with the PAYE Regulations plus interest. The tax debt can be transferred:
- where the employment intermediary has not been provided with evidence from another party from which it would be reasonable to conclude that the worker was not subject to SDC. The mere assertion by a person that the manner in which the worker provided the services wasn’t subject to (or to the right of) SDC of any person is not such evidence
- where fraudulent documents have been provided to the employment intermediary by another party, the debt may alternatively transfer to the client or to a relevant party (or their director(s)/officer(s))
PSCs and MSCs
Liability to pay PAYE Income Tax and Class 1 NICs sits with the employment intermediary in the first instance where:
- an employment intermediary is within the scope of ITEPA, Part 2, Chapter 8 (the Intermediaries legislation) as described at [ESM5580] or Chapter 9 (the MSC legislation) as described at [ESM5570], and
- there is a deemed employment payment or a deemed employment payment would have been made but for the fact that the worker (or an associate) receives all the remuneration from the intermediary (directly or indirectly) as employment income
However, if the employment intermediary fails to apply section 339A correctly and allows tax relief incorrectly on the amount of a travel and/or subsistence expense, then any underpayment of tax may be transferred to the director(s) or officers(s) of the intermediary. In the case of companies within the scope of the MSC legislation liability can transfer to those parties specified in section 688A ITEPA ESM3625.
Definitions
For the recovery of unpaid tax relating to travel expenses of workers paid through intermediaries:
- company - includes a limited liability partnership
- director - has the meaning given by section 67 of ITEPA
- employment intermediary - has the same meaning as in section 339A of ITEPA
- officer, in relation to a company, means any manager, secretary or other similar officer of the company, or any person acting or purporting to act as such
- MSC means a company which:
- is an MSC within the meaning given by section 61B, or
- would be such a company disregarding subsection (1)(c) of that section
Penalties and interest
The party to which any unpaid debt is transferred will also be liable for any penalties imposed and interest accrued.
Further information
For information about the provision of fraudulent documents - [ESM5650].