Agency Workers: rules from 6 April 2014

This Practical Tax Guide looks at the changes to the treatment of workers supplied through UK based agencies, employment businesses or other intermediaries.  

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

At a glance

From 6 April 2014 new rules apply to the treatment of workers supplied through agencies or other intermediaries.

  • The new rules affect workers who have in the past been provided through an agency to the end client on a self-employed basis.
  • Under the new rules workers who are supplied through an agency, and who are subject to supervision, direction or control (SDC) by any person, will be treated as an employee.
  • The worker’s earnings will be subject to PAYE and Class 1 employers and employees National Insurance Contributions (NIC).

New reporting requirement

From 6 April 2015 intermediaries who do not deduct PAYE and NIC 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?

The new 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 don’t 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.

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 or 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.

What the rules mean

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

  • The worker is treated as holding an 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 which 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. 


In April 2016 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.

Also see our subscriber guide Agency Workers: employment intermediaries rules (subscribers).


7 April 2016 the guide was reviewed and updated, and the link to the latest HMRC guidance was added.