UK: Employment Intermediaries And False Self-Employment: The "Agency Legislation"

Last Updated: 3 March 2015
Article by Jane Innes

There is confusion over the new Agency Legislation and businesses should treat it with care and determination.

Changes to the agency rules requiring PAYE to be applied to payments made by intermediaries to workers have produced uncertainty as well as giving rise to potentially onerous requirements on agencies.  They require immediate thought and action by all agencies.

The agency rules have been around in a variety of forms for decades.  In summary the intention of the legislation is to bring payments made by agents to workers who would not normally be regarded as employees, within the PAYE code.

The obligation is on the agency to account for PAYE.  Like all PAYE, this is a liability of the "employer" to HMRC.  It is not a tax liability of the worker.  The employer/agency would usually recoup the income tax and employee NIC charge from the worker under their terms of engagement. They are therefore simply left with the cost of employers' NIC.  However to HMRC the entire debt is one of the agency.

Recent publicity highlighted the number of workers being provided by offshore agencies to government run institutions, particularly schools and hospitals.  Often such agencies were not regarded, often correctly, as being within the old rules.  This was rather dramatically seen by HMRC as avoidance.

It was therefore not a surprise when in the Budget 2013 it was announced that the rules applying to offshore agencies were to be tightened.  What was more surprising was the announcement in December 2013 that the rules were to include onshore intermediaries to tackle "false self-employment".  HMRC meant business and made clear that despite all protests the changes would be introduced with effect from 6 April 2014.

The legislation that has followed has produced further uncertainty in its scope and application.  What is clear is that HMRC have a huge amount of discretion. How they will operate in practice will be determined by guidance and practice evolving over time.  This leaves agencies, and indeed anyone providing workers in difficulty.

The intention of the new rules are that where the services of a worker are provided to the client through a contract between the client and another party (the intermediary), PAYE will be accountable to HMRC by the intermediary.  If there are a chain of intermediaries, then it is the intermediary that contracts with the client that is liable. Advice should be sought if that intermediary is offshore to determine where the PAYE liability lies.

Given that an intermediary can be any entity it is clear that this rule is extremely broad.

There will be a duty on the intermediary to either account for PAYE or to provide a quarterly report to HMRC telling them about payments that have been made gross with an explanation of why the rules don't apply. These reporting requirements come into effect in April 2015 with first reports due in August 2015.  The details required are yet to be published. This puts the onus on the intermediary to justify payments that are regarded as outside the scope of the rules.

The only two circumstances in which the PAYE will not be due are where:

  • The worker is not under the supervision direction and control of anyone in providing their services; or
  • The remuneration would not be employment income in any event.

Given that the agency rules are applied before other rules such as the managed service company rules and IR35, the only real way out of the rules is on the basis that the worker is not supervised managed or controlled.

HMRC have published guidance on what they will regard as supervision, management and control.  While the guidance runs to 19 pages, the examples are extreme and unrealistic.  They also notably do not give guidance on the position of professional workers who would not normally regard themselves as "supervised".  Given the importance of the judgements that all intermediaries, not simply employment businesses are going to have to make on the issue, the guidance is disappointing.

Two points are worthy of note. The concept of supervision, management and control has been around for some time and previous case law helps.  Notably however on an unrelated point, HMRC lost a recent case where it was said that night security guards provided by an agency were not supervised managed and controlled.  Under HMRC guidance they would be so regarded and HMRC would regard PAYE as being due.

In addition recent experience shows that HMRC are aware that some of their guidance would be vulnerable on scrutiny from a tribunal.  Therefore careful consideration should be given as to how to respond to any enquiry to ensure HMRC are aware that they will need to justify their position.

Adding to the lack of co-ordination between the legislation and their implementation is fact that HMRC have been at lengths to say that they would not ordinarily regard a personal service company (PSC) as being an intermediary and coming within these rules.  This is on the basis that payments from a PSC are usually in the form of dividends rather than remuneration for the services.  Counsel's opinion has confirmed that this is not the basis on which the legislation is drafted. It is clear though that generally HMRC is being taken at its word and payments to PSCs are not being treated as within PAYE.  Care should be taken as the HMRC guidance states that where workers are being forced to contract through PSCs, anti-avoidance legislation will be used to bring the services of the worker back within the new rules, and PAYE claimed.

It is recommended that the following steps are taken to administer and comply with the new rules:

  • Review your contracts.  This is critical.  Even in the most simple relationship any intermediary will now need to ensure that:
    • they can pay the worker after deducting income tax and employee's NIC if required to do so;
    • ideally they can reclaim any income tax and employee's NIC claimed by HMRC from the worker, or at least have the worker co-operate with any claim to offset tax the worker has paid on the same amounts through self-assessment;
    • they can obtain the details necessary from the worker to comply with the reporting obligations;
    • If the worker is receiving payment gross, agree the terms for doing so and how this will be reported to HMRC and where the risk of disagreement with HMRC lies;
    • If there are other intermediaries in the chain, for instance, a contract with an umbrella company this information and protection should be claimed from them.  The terms between the parties will need to reflect the fact that it will not be the entity paying the worker who will be paying the PAYE to HMRC.  If workers are to be paid net, the terms of payment to the other intermediaries will need to be reviewed.  Where the cost of employers' NIC is to be borne will also need to be negotiated.

Review any situations in which workers are being paid gross to determine how this is to be reported and justified to HMRC.

And finally, if HMRC do question the status of any worker, do not be defensive.  HMRC may appear to have all the powers but their interpretations of supervision direction and control are aggressive and it is predicted will, in some cases, not stand up to close scrutiny.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.