The use of intermediary-type structures is becoming more prevalent as a means of providing labour. At its simplest, an individual who might otherwise be engaged as an employee by the end-user of his or her services provides the services to the end-user through an intermediary. Typically the intermediary used in such circumstances is a company. The company can take the form of a personal services company (PSC), with only one worker who is also a director. The company earns all, or almost all, of its income from supplying the services of the worker/director to the end user. A variation on the PSC arrangement is a managed service company (MSC), which supplies the services of more than one individual.
I understand that the UK tax authority, HM Revenue and Customs (HMRC) has recently been successful in the appeal case referred to by the Deputy. This appeal was taken by an intermediary company which had a contract with a television company in relation to the provision of the services of a journalist.
The appeal case related to a charge to tax and national insurance contributions arising under specific UK tax and social security legislation relating to the supply of a person’s services through an intermediary. In summary, Chapter 8 of the Income Tax (Earnings and Pensions) Act, 2003 and the Social Security Contributions (Intermediaries) Regulations 2000 provide that where the services of an individual are supplied through an intermediary to an end-user in certain circumstances, the intermediary company is required to treat all payments and benefits, including for example dividends, made to that individual as employment earnings and to deduct and remit PAYE income tax and national insurance contributions accordingly. Those circumstances are where the individual would be regarded for income tax and national insurance purposes as an employee of the end-user if the services were provided under a contract directly between the end-user and the individual.
I am advised by Revenue that we have no comparable legislation in Ireland governing the taxation of individuals engaged through intermediary companies. As a consequence, there is no basis for Revenue to seek to ignore contractual arrangements entered into by such a company and to apply the tax treatment that gave rise to the appeal.
In relation to the question of an investigation or audit, I am further advised by Revenue that it cannot comment on matters relating to any specific identified taxpayer or narrowly defined group of taxpayers. However, in the absence of legislation similar to that referred to above, there is no statutory basis for Revenue to take the approach that gave rise to the recent UK appeal.
In January I, along with my colleague, the Minister for Employment Affairs and Social Protection, published a report informed by the public consultation on the use of intermediary-type structures and self-employment arrangements. The consultation invited submissions on possible measures to address the loss to the Exchequer that may arise under various scenarios including where an individual, who would otherwise be an employee of an end user, provide his or her services to that end user through an intermediary vehicle.
The report concludes that the major part of the Exchequer loss is attributable to the much lower social insurance contribution payable by self-employed individuals as compared with aggregate total social insurance contribution paid by and in respect of employees. It therefore recommends that the most effective step to take is to consider reducing the differential in social insurance rates.
The report also examined options to address this challenge by providing that, in certain circumstances where an individual is engaged through an intermediary and that engagement bears the characteristics of dependent employment by the end user of the person’s services, that end-user would be required to deduct income tax and PRSI under the PAYE system. The report recommended that such proposals should be further explored and would have potential to reduce the scope for aggressive tax planning.
I am examining these recommendations along with my colleague, the Minister for Employment Affairs and Social Protection.