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HMRC internal manual

Employment Status Manual

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Agency and temporary workers: agency legislation - provisions from 6 April 2014: targeted anti avoidance rule (TAAR) (6 April 2014 onwards)

Applicable from 6 April 2014

Part 2, Chapter 7 Income Tax (Earnings and Pensions) Act 2003, section 46A

HMRC is aware that certain parties within the temporary labour market may seek to circumvent the agency legislation. The legislation therefore includes a TAAR within the Income Tax (Earnings and Pensions) Act 2003 and the National Insurance Act 2015 to deter tax and NICs avoidance.

The income tax TAAR will apply where a worker personally provides services (which are not excluded services) to another person (the client) and a third person enters into the ‘arrangements’ under which the main purpose, or one of the main purposes, of the third person’s involvement is to ensure the worker’s arrangement does not fall within the provisions of the agency legislation.

Tax TAAR

When the TAAR is applied, it will provide that unless the following two criteria apply:

(i) the worker is not subject to (or to a right of) supervision, direction, or control as to the manner in which their services are provided, or 

(ii) remuneration receivable by the worker in consequence of providing their services constitutes employment income, apart from the agency legislation being applied,

then the worker’s remuneration, received as a consequence of those arrangements involving the third person, will be treated as being employment earnings from an employment between the worker and the third person.

The third person will therefore be responsible for operating PAYE and paying Class 1 employees/employer’s NICs on all remuneration received by the worker (from any person) in consequence of providing their services via that arrangement in place.

In the event of the third person being treated as the employer of the worker via the application of the TAAR, then the provisions of section 44 of Chapter 7, Part 2 of ITEPA 2003 will apply with the omission of sections 44(4) to 44(6) (Fraudulent documents - see ESM2044).

‘arrangements’ include any scheme, transaction, or series of transactions, agreement, or understanding, whether or not legally enforceable, and any associated operations.

NICs TAAR

The NICs TAAR goes a little wider than just the agency provisions and also applies to situations where someone is trying to avoid the effect “host employer” provisions of Paragraph 9 to schedule 3 Social Security (Categorisation of Earners) Regulations 1978.

NICs TAAR applies where an earner provides services to a person in the United Kingdom (UK) and a third person enters into “avoidance arrangements”.

Avoidance arrangements are where the main purpose or one of the main purposes is that the earner is not an employed earner or that a person is not a secondary contributor under Paragraph 2 or 9 to Schedule 3 Social Security (Categorisation of Earners) Regulations 1978.

Where the NICs TAAR applies, the worker is treated as an employed earner liable to Class 1 NICs.

A person in the UK entering into the avoidance arrangements to avoid being a secondary contributor is treated as the secondary contributor for NICs.

The NICs TAAR in relation to agency takes effect from 6 April 2014 - but that part concerned with the “host” regulations in Paragraph 9 only takes effect from 12 February 2015.

Personal Service Companies

The Tax and NICs TAAR will not apply to people who set up Personal Service Companies (PSCs) for a reason other than reducing tax, such as the limited liability protections incorporation provides. However, HMRC will use the TAAR in the most egregious cases where, for instance, an agency requires all of their workers to set up PSCs to avoid the agency legislation.

Other information:

  • for Service Companies (including PSCs), see ESM2051.