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HMRC internal manual

Employment Status Manual

Agency and temporary workers: written opinion - standard format letter

The following letter is to be issued where the Agency provisions of Section 44 of ITEPA 2003 applies for tax and/or para 2 of Part 1 of Schedule 1 to the SS (Categorisation of Earners) Regulations 1978 for NICs.


As you are aware, I have been considering the employment status of [Mr/Mrs/Ms ………………..] in respect of [his/her] engagement with [the agency] for the period from DD/MM/YY [to DD/MM/YY/or to date [if the engagement is ongoing]

I have enclosed guidance at Annex A describing how the Revenue decides employment status.

Based on the information and facts provided to me it is my opinion that a contract of service does not exist between [the agency] and [Mr/Mrs/Ms ………………..]. However, special rules exist for both Income Tax and National Insurance Contributions where a person is engaged through a third party (“the agency”)

Under Section 44 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) the special rules enable the remuneration receivable by workers working through an agency to be treated as though they were earnings from an employment with the agency. The legislation broadly states that where:

  • an individual personally provides, or is under an obligation to provide, services to another person; and
  • the services are supplied by or through a third person (”the agency”) under the terms of an agency contract; and
  • that person is subject to (or to the right of) supervision, direction or control as to the manner in which the services are provided; and
  • remuneration receivable under or in consequence of the agency contract does not constitute employment income of the worker,

those services are to be treated for income tax purposes as duties of an employment held by the worker with the agency. PAYE should be operated on all remuneration receivable by the individual under the agency contract.

For National Insurance purposes Paragraph 2 of Part 1 of Schedule 1 to the Social Security (Categorisation of Earners) Regulations 1978 (the Regulations) works in a similar fashion to Section 44 of ITEPA. It provides for a person working through an agency to be treated as an employed earner. Paragraph 2 of Schedule 3 to the Regulations also provides for the agency to be treated as the secondary contributor.

It is my opinion that the contractual arrangements which exist between [the agency] and [Mr/Mrs/Ms ………………..] are third party arrangements covered by both Section 44 of ITEPA and the relevant schedules to the Regulations.

The reason for my opinion is:

[Insert your explanation here along with a full account of the facts on which it is based. Your explanation can be as long as necessary. In cases where you have taken into account the worker’s personal factors and you are writing to the agency you should only refer to them in a general way and should not provide details.]

Therefore, both PAYE and Class 1 National Insurance contributions are properly due with [the agency] being treated as the liable secondary contributor.

This opinion applies for the purposes of tax and National Insurance contributions. It does not apply for other purposes for example, National Minimum Wage and employment protection legislation.

Further Information

If you disagree with the contents of this letter you should tell me as soon as possible why you think it is wrong and provide any further information and/or documentation which you think is relevant. I will consider what you have told me and advise you accordingly.

Annex A

How we decide employment status 

A person’s tax and National Insurance liabilities are determined in accordance with their employment status. An ‘employee’ is a person who works under a contract of service, sometimes also referred to as a contract of employment. A person who works under a contract for services is self-employed.

Tax and NI legislation does not define a contract of service and we have to seek guidance from the relevant case law handed down by the Courts over the years. The Courts have identified factors that help to determine if a particular contract is a contract of employment or self-employment. A contract does not have to be in writing. It can be written, oral, implied or a combination of all three.

Relevant factors include

  • whether there is an ultimate right of control on the part of the engager over what tasks have to be done, where the services have to be performed, when they have to be performed and how they have to be performed
  • whether personal service is required
  • whether the worker has the right to provide a substitute or engage helpers
  • who has to provide the equipment and/or materials
  • whether the worker has a real risk of financial loss
  • whether the worker has the opportunity to profit from sound management for example, by reducing overheads and organising work effectively
  • the basis of payment
  • whether there are ‘employee type’ benefits - for example, sick pay, pensions, holiday pay, and so on.
  • whether the worker works exclusively for the engager
  • whether the worker is part and parcel of the engager’s business or organisation
  • whether there is a right to terminate the engagement by giving notice of a specific length
  • factors personal to the worker for example, number of engagements and business organisation
  • the intention of the engager and worker as regards employment status.

When all the facts have been established the approach endorsed by the Courts is to stand back and look at the picture as a whole. It can then be seen whether the overall effect is that of a person in business on his/her own account or a person working as an employee in somebody else’s business.

There are special rules for both Income Tax and National Insurance contributions where a person is engaged through an agency. Sometimes there are also special rules that apply for National Insurance contribution purposes but not for tax. These special rules apply to certain occupations as prescribed in the Social Security (Categorisation of Earners) Regulations 1978.”