Employment status: employment intermediaries

Find out if you're an employment intermediary and what you need to do to make sure your worker's tax and National Insurance is paid right.

Who is an employment intermediary

Employment intermediaries are responsible for making sure that tax and National Insurance are paid correctly for workers.

An employment intermediary is a person or business who makes arrangements for someone to work for a third person. They are also often known as an ‘agency’ or ‘employment business’.

You’re an employment intermediary if you supply workers to work for an end client or another employment intermediary, and the client then pays you or someone connected to you for the worker’s services. The end client is who the worker does the work for.

Employment intermediary

Your tax and National Insurance obligations

If you’re the worker’s employer, you normally have to operate PAYE as part of your payroll.

If you’re an employment intermediary there are special ‘agency’ rules that apply instead.

If you’re a personal service company then you will also need to consider other rules such as IR35: working through an intermediary and Managed Service Companies, but agency rules will take precedence over these.

Agency rules

Agency rules mean that you need to operate PAYE as if the workers you supply are your employees. The payments the worker receives are treated as employment income.

Agency rules do not just apply to employment agencies. If you supply workers for your clients or for other employment intermediaries then you need to check whether you have to operate PAYE.

When you need to follow agency rules

You must follow agency rules and operate PAYE for your worker if all the following conditions apply:

  • the worker personally provides services to another person - known as the ‘client’
  • there is a contract between the client (or a person connected with the client) and a person who is not the worker, the client, or a person connected to the client - the ‘agency’
  • the client pays or provides consideration for the services of the worker

Exceptions to agency rules

Agency rules do not apply if the worker:

  • provides their service without anyone (including the intermediary or the client) having the right to supervise, direct, or control how they do the work - see ESM2037 guidance in Employment intermediaries: personal services and supervision, direction or control
  • always works from their own home, or on premises not controlled or managed by the client - unless the type of service being provided to the client means the worker has to be at those premises
  • provides their services as:
    • an actor
    • singer
    • musician or other entertainer
    • fashion, photographic or artist’s model

The Employment Status Manual gives more detail about the exceptions to the agency rules.

The rules also do not apply if there’s someone else who is the contractual employer of the workers. That employer has to operate PAYE, not the agency. For example, if you get your workers from an umbrella company and they employ the workers and deduct PAYE, you as an employment intermediary do not have to apply these rules.

More than one employment intermediary in a contractual chain

Where more than one UK employment intermediary is involved, you are treated as the employer if your business is the one that has the contract with the end client.

If there is more than one employment intermediary in a contractual chain and only one of you is in the UK, then that business is responsible for fulfilling PAYE obligations for the worker.

Workers supplied to work outside the UK

You still have to operate PAYE if you send a worker abroad and they would normally qualify for UK PAYE deductions. For example, an employment intermediary supplies 4 UK residents to work 3 weeks in the Netherlands for a Dutch company. You should operate PAYE for this period if agency rules apply. If agency rules do not apply, you should apply the normal employment status rules.

You do not operate PAYE if you’re a UK agency and you are supplying non-UK resident workers to a client based abroad.

Workers supplied to a non-UK employer or agency with no UK presence

If a worker works in the UK for an employer who has no presence in the UK and the PAYE regulations do not apply, there are special rules that can treat someone else as the employer if:

  • the employee works for another person in the UK that person is treated as the employer
  • a third party is involved - for example an agency, then the agency that contracts with the end client is treated as the employer

UK Continental Shelf workers

There are different rules if a worker is a Continental Shelf worker in the oil and gas industry.

If the employer is in the UK, the employer must operate PAYE.

If the employer is outside the UK and does not need to operate PAYE, then an associated company in the UK is treated as the employer for PAYE.

If there is no associated company in the UK, the oil or gas license holder is treated as the employer for PAYE.

The Employment Status Manual has more detailed guidance about agency legislation for the oil and gas sector.

An oil and gas certification scheme operates so that a person outside the UK can meet the PAYE obligations and certify this to the license holder.

Reporting requirements for employment intermediaries who do not need to operate PAYE

You must send HM Revenue and Customs (HMRC) a special electronic return with basic information about your business and each worker you supply to a third party if you are a UK employment intermediary and you have not operated PAYE.

The return is a report (or reports) that must be sent to HMRC at least once every 3 months, you may be charged a penalty if your report is late, incomplete or incorrect. You must use HMRC’s report template. HMRC has provided an online service for you to upload and send your reports.

If you have further questions about reporting obligations:

Telephone: 03000 555 995, Monday to Friday, between
8:30am to 4:30pm

Published 23 September 2015
Last updated 28 September 2020 + show all updates
  1. The opening times under 'Reporting requirements for employment intermediaries who do not need to operate PAYE' have been updated to 8:30am to 4:30pm.

  2. The opening times under 'Reporting requirements for employment intermediaries who do not need to operate PAYE' have been updated to 8:30am to 4pm.

  3. This page has been update to include a YouTube link to 'Who is an employment intermediary?'. A contact telephone number has also been added to the page.

  4. First published.