An employment intermediary is a person or organisation that makes arrangements for an individual to work for a third party and is remunerated for the work done. Employment intermediaries are often referred to as recruitment agencies.
Tax obligations for employment intermediaries
Employers typically make income tax (IT) and National Insurance contribution (NIC) deductions when paying employee using PAYE as part of their payroll procedures. However, special agency rules apply to employment intermediaries when it comes to IT and NICs. Personal service companies (PSCs), companies set up by individuals through which to offer their services, also have to take into account intermediaries’ legislation known as IR35 and guidance on managed service companies (MSCs).
Any organisation that meets the conditions for agency legislation to apply must operate PAYE as if the workers they supply to third parties their own employees.
Agency rules apply if:
- A supplied worker personally provides services to another person or 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.
Agency rules do not 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.
- The worker always operates on premises not managed by the client. Exceptions apply.
- The worker is an actor, singer, musician, entertainer, photographer or model, although this can vary; the Employment Status Manual provides details about the exceptions to agency rules.
Multiple employee intermediaries
When more than one UK employment intermediary is involved, it is the one that has the contract with the end client who is legally considered the worker’s employer. When one employee intermediary is based outside the UK, it is the employee intermediary based in the UK that is responsible for fulfilling PAYE obligations.
Employment intermediary rules outside the UK
If agency rules apply, PAYE still needs to be followed by an employment intermediary when a worker is sent abroad and would ordinarily qualify for UK PAYE deductions. The normal rights and rules determined by a person’s employment status apply if agency rules do not.
Employee intermediaries supplying non-UK resident workers to a client based abroad do not operate PAYE. If a worker works in the UK for an employer who has no presence in the UK and PAYE regulations do not apply, there are special rules than can treat another party as an employer.
Continental shelf workers
Different rules apply to continental shelf oil and gas workers; if the employer is in the UK they must operate PAYE, and if the employer is outside the UK and does not need to operate PAYE, an associated company in the UK is treated as the employer and must operate PAYE. If there is no associated company in the UK the oil or gas license holder is treated as the employer and must operate PAYE.
The Employment Status Manual details agency legislation for the oil and gas sector.
Employment intermediaries who do not operate PAYE
Any employment intermediary in the UK that does not operate PAYE must submit a report to HMRC providing information about people you find work for that you pay.