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HMRC internal manual

Employment Status Manual

HM Revenue & Customs
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Agency and temporary workers: agency legislation - provisions from 6 April 2014: the employer for tax purposes (6 April 2014 onwards)

Applicable from 6 April 2014

Part 2, Chapter 7 and Part 11, Chapter 3, Income Tax (Earnings and Pensions) Act 2003 section 44

From 6 April 2014, the agency legislation at Chapter 7 of Pt 2 of ITEPA 2003 and the PAYE legislation at Chapter 3 of Pt 11 ITEPA 2003 have been amended to determine who should operate PAYE where more than one party is involved in the provision of a worker’s services.

For income tax purposes, where the conditions in s44(1) ITEPA 2003 apply, the worker is treated as holding an employment with the agency. The remuneration they receive in consequence of entering into the arrangements is treated for income tax purposes as earnings from that employment. In these circumstances, s688(1) and (1A) of ITEPA 2003 prescribe that the agency is the employer who must deduct income tax, operate PAYE, and remit the payment to HMRC via RTI.

Where there is more than one UK agency involved in the arrangements all based in the UK, section 44 of ITEPA 2003 deems the worker to have an employment with the agency which directly contracts with the client to provide their services and the provisions of section 688 (1A) apply to make that agency the liable employer who must operate PAYE. Where an intermediary of the agency makes the payment, the provisions of s687 will require the agency to operate PAYE if this is not done by the intermediary (see EIM11810 et seq). Where the payment is made by someone other than the agency or the intermediary, s688 (1B) treats that person as an intermediary of the agency. This again brings the requirements of s687 into operation with the effect that the agency must operate PAYE if this is not done by the other person. This will only apply where the worker is not already an employee of another company. Where they are an employee, the PAYE regulations will apply in the usual way to prescribe the employer.

If a worker is placed with a UK client by or through an agency based outside the UK, then the client is treated as the employer responsible for deducting income tax and accounting for it under PAYE using RTI. This is required under the provisions of s689 ITEPA 2003 and is not a change from the situation prior to 6 April 2014 (see EIM11820).

When a worker is engaged via an agency or employer based outside the UK and then placed with a UK client via one or more UK agencies, then the requirement to operate PAYE is placed on the UK agency which has directly contracted to supply workers to the client. This is prescribed by the provisions of s689(1B) and (1C).

Other information:

The legislation does not prevent any party that pays the worker from operating PAYE, but failure to meet the income tax liabilities in full will mean that the responsible party (as explained above) will be liable. This will only apply where the worker is not already an employee of another party. Where they are an employee the PAYE regulations and NICs legislation will apply in the usual way to the employer.

For further information, see the Employment Income Manual and the PAYE Manual.

There is a record-keeping and returns requirement for agencies, see ESM2042.

This page does not apply to the oil and gas sector where special provisions apply, see ESM2053.