More Guidance on Agency Legislation

Overview of the New Rules

HMRC has recently published more guidance on the new Agency Legislation that took effect from 6th April 2014. The guidance has the snappy title, ‘Agency workers:  changes to treatment of workers supplied through UK based agencies, employment businesses or other intermediaries.’

Who is it aimed at?

Not surprisingly the guidance should be read by:

• those involved directly or indirectly in the provision of workers to end clients, e.g. agencies, employment businesses.
• End users of workers supplied by agencies or employment intermediaries.
• Workers supplied through agencies, employment businesses or employment intermediaries.

What has changed since 6th April 2014?

The new rules affect workers who have previously been provided to end clients through an agency, to work on a self-employed basis. From 6th April of this year an agency must decide whether a worker is subject to (or to a right of) supervision, direction or control by either the end client or someone else. If they are then the worker is treated as an employee and the agency must account for PAYE and NIC.

An agency can be excepted from having to account for PAYE and NIC in two situations:

1. If the client provides the agency with a fraudulent document which is intended to evidence that the worker is not subject to (or to a right of) supervision, direction or control; or
2. If another person provides the agency with a fraudulent document which is intended to evidence that PAYE has already been applied to payments the worker received.

In these cases the client or the other person will become liable for the PAYE. If either of those two parties is a limited company and that company fails to pay over the PAYE, then HMRC will transfer the debt to the directors of the company.

HMRC’s definition of control

Broadly, HMRC define the three elements of control as:

Supervision

Is someone overseeing a person doing the work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.

Direction

Is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often co-ordinate how the work is done, as it is being undertaken.

Control

Is someone dictating what work a person does and how they go about doing that work, Control also includes someone having the power to move the person from one job to another.  

Umbrella companies

The guidance reaffirms that umbrella workers are unaffected by the Agency Legislation as they are engaged under a contract of employment already.

Personal Service Companies (PSC’s)

The Agency Legislation will generally not apply to PSC’s essentially because the rules apply when remuneration is received by the worker as a consequence of providing the services, Dividends, therefore, paid to a contractor as a genuine consequence of their shareholding in the PSC will not normally constitute as being “remuneration” for the purposes of the legislation.

Agencies however still continue to be confused because of the way the legislation is worded. The third party (described in the legislation as the ‘agency’) is any structure interposed between the engager and the worker. The third party can include employment businesses and PSC’s!

The old rules were never applied to contractors working through their own genuine PSC and that is not about to change.

The construction industry features heavily in the guidance so a clear signal is being sent by HMRC as to where they see the problem lying.