Your tax and National Insurance obligations
If you’re the worker’s employer, you normally have to operate PAYE as part of your payroll.
If you’re an employment intermediary there are special ‘agency’ rules that apply instead.
If you’re a personal service company then you will also need to consider other rules such as IR35: working through an intermediary and Managed Service Companies, but agency rules will take precedence over these.
Agency rules mean that you need to operate PAYE as if the workers you supply are your employees. The payments the worker receives are treated as employment income.
Agency rules don’t just apply to employment agencies. If you supply workers for your clients or for other employment intermediaries then you need to check whether you have to operate PAYE.
When you need to follow agency rules
You must follow agency rules and operate PAYE for your worker if all the following conditions apply:
- the worker personally provides services to another person – known as the ‘client’
- there is a contract between the client (or a person connected with the client) and a person who is not the worker, the client, or a person connected to the client – the ‘agency’
- the client pays or provides consideration for the services of the worker
Exceptions to agency rules
Agency rules don’t apply if the worker:
- provides their service without anyone (including the intermediary or the client) having the right to supervise, direct, or control how they do the work – see ESM2037 guidance in Employment intermediaries: personal services and supervision, direction or control
- always works from their own home, or on premises not controlled or managed by the client – unless the type of service being provided to the client means the worker has to be at those premises
- provides their services as:
- an actor
- musician or other entertainer
- fashion, photographic or artist’s model
The Employment Status Manual gives more detail about the exceptions to the agency rules.
The rules also don’t apply if there’s someone else who is the contractual employer of the workers. That employer has to operate PAYE, not the agency. For example, if you get your workers from an umbrella company and they employ the workers and deduct PAYE, you as an employment intermediary don’t have to apply these rules.
Where more than one UK employment intermediary is involved, you are treated as the employer if your business is the one that has the contract with the end client.
If there is more than one employment intermediary in a contractual chain and only one of you is in the UK, then that business is responsible for fulfilling PAYE obligations for the worker.
Workers supplied to work outside the UK
You still have to operate PAYE if you send a worker abroad and they would normally qualify for UK PAYE deductions. For example, an employment intermediary supplies 4 UK residents to work 3 weeks in the Netherlands for a Dutch company. You should operate PAYE for this period if agency rulesapply. If agency rules don’t apply, you should apply the normal employment status rules.
You don’t operate PAYE if you’re a UK agency and you are supplying non-UK resident workers to a client based abroad.
Workers supplied to a non-UK employer or agency with no UK presence
If a worker works in the UK for an employer who has no presence in the UK and the PAYE regulations do not apply, there are special rules that can treat someone else as the employer if:
- the employee works for another person in the UK that person is treated as the employer
- a third party is involved – for example an agency, then the agency that contracts with the end client is treated as the employer
UK Continental Shelf workers
There are different rules if a worker is a Continental Shelf worker in the oil and gas industry.
If the employer is in the UK, the employer must operate PAYE.
If the employer is outside the UK and doesn’t need to operate PAYE, then an associated company in the UK is treated as the employer for PAYE.
If there is no associated company in the UK, the oil or gas license holder is treated as the employer for PAYE.
The Employment Status Manual has more detailed guidance about agency legislation for the oil and gas sector.
An oil and gas certification scheme operates so that a person outside the UK can meet the PAYE obligations and certify this to the license holder.
You must send HM Revenue and Customs (HMRC) a special electronic return with basic information about your business and each worker you supply to a third party if you are a UK employment intermediary and you haven’t operated PAYE.
The return is a report (or reports) that must be sent to HMRC at least once every 3 months, you may be charged a penalty if your report is late, incomplete or incorrect. You must use HMRC’s report template. HMRC has provided an online service for you to upload and send your reports.