Commentary on Sections Glossary Part 2: Employment income: charge to tax Section 51: Conditions of liability where intermediary is a company
207.As suggested by the heading, this section is only of interest if the intermediary is a company. It derives from paragraph 3.
208.Subsection (1) sets out one negative condition and two alternative positive conditions. The negative condition is that the intermediary should not be an associated company of the client. If the intermediary is associated with the client then this Chapter will not apply.
209.Subsection (2) sets out a special test for whether the company is associated with the client for the purposes of this paragraph. It derives from paragraph 3(2).
210.It incorporates a minor change to the law. The normal meaning of “associated company” is given in section 416 of ICTA. That definition says that two companies are associated if one has control of the other, or if they are both controlled by the same person or persons. It is imported for the purposes of this Chapter by section 61. But paragraph 3(2) only envisages common control under a maximum of two people - the worker and another person. This subsection widens the definition of “associated company” for the purposes of section 51 to include companies that are under the common control of the worker together with more than one other person. See Change 12 in Annex 1.
211.One of the positive conditions mentioned in subsection (1) is that the worker has a material interest in the company. This catches the most obvious cases where a company is being used as an intermediary, where the worker has some say in the operation of the company. Subsection (4) sets out the definition of “material interest” for this purpose. That definition includes a reference to “a participator”, a term which is defined in subsection (5).