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HMRC internal manual

Employment Status Manual

Agency and temporary workers: remuneration paid or provided by the client in relation to the services

Applicable prior to 6 April 2014

Section 44(2)(b) ITEPA 2003

Section 44(2)(b) states that all remuneration receivable under or in consequence of the agency contract (including remuneration which the client pays or provides in relation to the services) is to be treated for income tax purposes as earnings from that employment.

The conditions under section 44(1) must be satisfied i.e. the worker is caught by the agency legislation, before consideration is given to section 44(2)(b).

Where all of the conditions at s44(1) ITEPA 2003 are satisfied, then if for any reason the client pays or provides remuneration in relation to the services, then that remuneration is to be treated for income tax purposes as earnings from that employment which the agency must account for under PAYE.

When considering remuneration “…in consequence of the agency contract….”, if there is a clear link between the payment and the contract then the payment would be chargeable.

One example could be where overtime payments may be negotiated separately between agency worker and client. Those overtime payments would be received as a consequence of the agency contract so would need to be accounted for by the agency under PAYE.

Another example may be where an agency worker is assigned to a client over the Christmas period and the client pays both its own permanent staff and temporary (agency) workers a Christmas bonus. The bonus would be receivable by the temporary worker as a consequence of the agency contract so would need to be accounted for by the agency under PAYE.

From 6 April 2014 onwards, an agency contract (that is, a contract between an individual and a third party) is no longer a qualifying condition that must be satisfied before the provisions of the agency legislation can be applied.

See ESM2034 for the qualifying conditions which apply from 6 April 2014 onwards.