What is the tax treatment of workers supplied through UK-based agencies, employment businesses or other staff supply intermediaries?
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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 take home pay than other agencies, it may be operating an illegal tax avoidance scheme, see Starting Work 5. Agency or Umbrellas
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: Employment intermediaries rules (subscribers) for full details of reporting and the 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 both:
- 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.
- 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.
Anti-avoidance
The legislation includes a Targeted Anti-Avoidance Rule (TAAR) to deter tax avoidance.
Penalties
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 (subscribers)
What are the tax rules for Employment Intermediaries and Agencies? Are agency workers subject to PAYE?
Off-Payroll Working: PSCs & Private Sector Engagers
What is Off-Payroll Working? Who does it apply to? What are the rules?
Off-Payroll Working: PSCs & Public Sector Engagers
The 'Off-Payroll Working' rules move IR35 and the responsibility to assess a worker's employment status and to deduct Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) from a worker's fees, away from the worker's company to the End-Client in the labour supply chain.
IR35
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?
Personal Service Company (PSC) tax
What is a PSC? What are the tax implications for a PSC and its owners?
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.