HMRC internal manual

Employment Status Manual

ESM2001 - Agency and temporary workers: the agency legislation

Part 2 Chapter 7 ITEPA 2003

(Prior to ITEPA 2003 the agency legislation for tax purposes was found at section 134 ICTA 1988)

SS (Categorisation of Earners) Regulations 1978 (SI 1978 No.1689) Regulation 2 and paragraph 2 in column (A) of Part I of Schedule 1

Subject to certain conditions, the agency legislation applies where a worker provides services to an ‘employer’ through a third party in such a way that, technically, the worker is not an employee of either. The third party will often be an employment agency but the legislation may apply to any worker who provides services through any third party. Before the legislation was introduced an agency worker who was not employed by either party was liable to Class 2 NICs and assessed under Schedule D.

Where Part 2 Chapter 7 applies, the services rendered by the worker are, for income tax purposes, treated as if they were the duties of an employment held by the worker. The remuneration receivable is treated as earnings and is therefore chargeable to tax under as employment income. Accordingly, all the employment income rules apply and PAYE must be operated by the payer.

Where Regulation 2 applies, the worker is treated as an employed earner for Class 1 NICs purposes. The agency is treated as the secondary contributor for Class 1 NICs purposes by virtue of Regulation 5 and paragraph 2 in column (B) of Schedule 3 to the ‘Cats Regs’.