What is the tax treatment of workers supplied through UK-based agencies, employment businesses or other staff supply intermediaries?

Subscribers, click here for the detailed (subscriber guide) to the agency rules: new and old.

This is a freeview 'At a glance' guide to the Agency Workers rules.

At a glance

The agency worker rules apply when workers supply their services to an agency for the onward supply to an end client.

  • For all workers taken on, the agency must assess whether the worker can be paid gross as being self-employed or should be taxed under PAYE as an employee of the agency.
  • The key test is whether the worker is subject to supervision, direction, or control (SDC) by any person: if so the agency must then tax them as its employee.
    • The worker’s earnings will be subject to PAYE and Class 1 employers and employee National Insurance Contributions (NICs).

Agency rules v. Off-Payroll Working rules

  • The agency rules only apply when a worker is engaged to work personally via an agency or other staff supplier, and their services are provided onwards to an end client.
  • If the worker is supplying their services to an agency via their own Personal Service Company (PSC), the Off-Payroll Working rules apply instead. 
  • If the worker is supplying their services via a Managed Service Company (MSC), the Managed Service Company rules cut in. IR35 usually 'trumps' the MSC rules.
  • If an agency claims that it can provide you with more tax home pay than other agencies, it may be operating an illegal tax avoidance scheme, see Starting Work 5: Working for an agency/umbrella tax-avoidance risk

Reporting requirement

Intermediaries who do not deduct PAYE and NICs from payments made to self-employed workers are subject to a quarterly reporting requirement and late filing penalties apply, see Agency Workers and Employment Intermediaries (subscriber version) for full details of reporting and the new penalty regime.

Who is affected?

These rules will apply where:

  • A worker provides their services personally to a client.
  • There is a contract between the end client and any third party, such as an agency.
  • As a result of that contract, either the services are provided, or the client pays for the services to be provided.

The rules do not apply if the manner in which the worker provides the services is not subject to Supervision, direction or control (SDC) by any person.

What is an agency?

An agency is any third party interposed between the worker and the client for whom they provide the services. The agency does not have to place the worker with the client for the legislation to apply. 

A worker's own PSC is not an agency for the purposes of these rules. If the worker supplies their services via a PSC, the Off-Payroll Working rules are applied instead.

Provision of services

For the agency legislation to apply, there must be a contract between the client (or a person connected with the client) and the agency, under, or in a consequence of which:

  • The worker's services (which are not excluded services) are provided, or the client (or any other person connected with the client) pays, or otherwise provides consideration, for the services and
  • The other conditions for the agency legislation to apply are met.

It is not necessary for the contract between the agent and the client to provide for the services of a named individual.  The legislation will apply if any worker personally provides their services, even if that worker is a substitute.

Also note that, unlike the pre-6 April 2014 position, there is no specific requirement for an 'agency contract' to exist between the agency and the worker for the agency legislation to apply.

Supervision, direction or control (SDC)

The exercise of the right to exercise SDC must be over the manner in which the services are rendered.

There does not need to be SDC over when, where or what is to be done, only over how the work is to be done.

See Supervision, Direction or Control (SDC)

What the rules mean

When all of these conditions are satisfied, the following provisions will apply:

  • The worker is treated as holding employment with the agency, the duties of which consist of the services the worker provides to the client.
  • In this context, the agency is the third party that contracts with the client or a person connected to the client.
  • The remuneration received by the worker for providing the services is treated as earnings for Income Tax and NIC purposes and the agency must operate PAYE.


The legislation includes a Targeted Anti-Avoidance Rule (TAAR) to deter tax avoidance.


An associated penalty regime has been introduced. 

Useful guides on this topic

Off-Payroll Working At a glance
What is Off-Payroll Working? What is IR35? What are the tax rules for Off-Payroll Working or IR35? How do you check employment status? What is a personal service company?

Agency Workers: Employment intermediaries rules
You supply your personal services to an agency who supplies you to and end client

Off-Payroll Working with private sector end clients 
You supply your personal services via your own PSC to an agency who supplies you to a large or medium-sized end client

Off-Payroll Working with public sector end clients
You supply your personal services via your own PSC to an agency who supplies you to a public sector end client

IR35: Off-Payroll Working
You supply your personal services via your own PSC to an agency who supplies you to a small-sized end client

Personal Service Company (PSC) tax 
What's new for PSCS? What tax rules apply when changes to VAT and travel rules 

External links

HMRC published guidance entitled Employment Intermediaries: personal services and supervision, direction or control which provides clarification and detailed examples as to the meaning of SDC and how HMRC will determine whether the test is met.  See HMRC updated guidance: Supervision, Direction or Control.

Squirrel ad

Are you enjoying our content? 

Thousands of accountants and advisers and their clients use rossmartin.co.uk as their primary TAX resource.

Register now to receive our FREE weekly SME Tax News update