SolvedESM10026 | off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: international examples
From HM Revenue & Customs · Employment Status Manual
This page provides examples where different parties in the contractual chain are based in different countries and what impact that has on the off-payroll working rules.
Client wholly overseas
Where a medium or large-sized non-public sector client is based wholly overseas, so there is no UK connection immediately before the beginning of the tax year because it is not UK resident and does not have a UK permanent establishment, then the rules at Chapter 10, Part 2 ITEPA 2003 do not apply (see ESM10006). The worker’s intermediary should consider whether Chapter 8, Part 2 ITEPA 2003 applies for these engagements.
An engagement can only fall within Chapter 10, Part 2 ITEPA 2003 if the worker has a UK liability to tax or NICs, so residency of the worker must be considered.
Scenario 1
The client is resident in a country outside the UK, but has a UK branch immediately before the beginning of the tax year in which the worker provided their services. All other parties are based in the UK including the agency and worker’s intermediary. The services are also provided by the worker in the UK.
Answer 1
In this scenario, the worker is UK resident and carries out the work in the UK, so a UK tax and NICs liability will arise. Although the client is based overseas, it has a UK branch immediately before the beginning of the tax year during which the worker provided their services so has a UK connection through its permanent establishment. It is, therefore, within the scope of the off-payroll working rules.
In this example the client should issue a status determination statement directly to the worker and to the agency. By passing the status determination statement down the contractual chain to the UK agency the client would have discharged its responsibilities under the legislation (subject to meeting the requirement to exercise reasonable care). As we have a UK agency in the chain, so long as that agency is a ‘qualifying person’ (see ESM10017) the agency will be responsible for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due.
If the client does not discharge its responsibilities then the responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due, will rest with it. HMRC would pursue this through the client’s UK branch.
Scenario 2
The client is resident outside the UK but has a UK office immediately before the beginning of the tax year in which the worker provided their services. The worker’s intermediary is resident in a country outside the UK. The agency and worker are both resident in the UK. The work is performed outside the UK.
Answer 2
In this scenario, the worker is UK resident but performs the work outside the UK, so a UK tax liability will arise unless an agreement gives taxing rights to another country exists. Although the client is based overseas, it has a UK office immediately before the beginning of the tax year during which the worker provided their services so has a UK connection through its permanent establishment. It is, therefore, within the scope of the off-payroll working rules.
The worker’s intermediary being based overseas does not affect the operation of the rules. The client should issue a status determination statement to the worker directly and to the UK agency it contracts with. By passing the status determination statement to the UK agency the client would have discharged its responsibilities under the legislation (subject to meeting the requirement to exercise reasonable care). The UK agency is a ‘qualifying person’ and will therefore be responsible for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due.
If the client does not discharge its responsibilities then the responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due will rest with it. HMRC would pursue this through the client’s UK office.
Scenario 3
A client resident in a country outside the UK operates an oil/gas platform a) within twelve nautical miles of the UK (so within UK waters) or b) outside UK waters with no UK residency or permanent establishment. In both situations the intermediary and worker are both UK resident, and there is no other person in the contractual chain.
Answer 3
In scenario a) the client has a UK connection because the oil/gas platform is within UK waters. As the worker is performing services in the UK for a client in the UK, there will be a UK liability to tax and NICs and so is within the scope of Chapter 10, Part 2 ITEPA 2003. The client should issue a status determination statement to the worker directly. By passing the status determination statement the client has discharged its responsibility. As there is no other person in the chain between it and the worker’s intermediary the client is therefore responsible for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due.
In scenario b) the client has no UK connection because it is outside UK waters and has no permanent establishment in the UK. It is therefore outside the scope of the off-payroll working rules. As the worker is UK resident they should consider whether Chapter 8, Part 2 ITEPA 2003 applies.