Contractors' Questions: Do the onshore intermediary rules exempt composites?

Contractor’s Question: Under the amended Onshore Intermediary Regulations, HM Revenue & Customs appears to refer to "composite services" as being out of scope of the regulations. So are composite services exempt from the rules and, if so, how is "composite services" defined?

Expert’s Answer: HMRC defines ‘composite service’ in the Finance Bill as “a service made up of a number of services” which, admittedly, is not a terribly helpful explanation.

Basically, composite service companies usually employ workers and then supply them to clients. Before 2007 when the Managed Service Company legislation was introduced, it was common for these workers to be paid a combination of minimum wage salary and dividends.

The changes to the regulations you ask about, to be found at Section 44 of the ITEPA, do indeed state that the legislation will not apply ‘where the manner in which the service is provided or the involvement in the provision of service (such as a composite service) by the worker is not subject to (or the right of) control, direction or supervision by any person.’

However, they also state that ‘...where the worker is providing services personally or as part of a composite service they must be treated as an employee of the agency for income tax and all income receivable by the worker in consequence of providing a service is to be treated for income tax as earnings to have come from said employment.’ Essentially what this means is that, for the legislation not to apply, it would have to be demonstrated that no supervision, direction and control (or the right there of) can be exercised over the worker.

The expert was Lisa Keeble, managing director of ContractorUmbrella.

Editor's Note: Further Reading -

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