The provisions of ITEPA 2003, s. 44 bring agency workers within the scope of PAYE. An agency worker is defined as a worker who:-
- renders, or is under an obligation to render, personal services to another person (the client);
- is subject to, or to the right of supervision, direction or control as to the manner in which he renders those services;
- is supplied to the client by or through a third person (the agency); and
- renders, or is under an obligation to render those services under the terms of a contract between himself and the agency.
However, a person who obtains work through an agency or some third party is not treated as an employee if any of the following apply:-
- the only payment made is an introductory fee;
- the person employed is an entertainer or model; or
- the work is done at home or somewhere not controlled or managed by the firm or person for whom the work is done.
Normally, where the agency supplies the worker, it will pay the worker itself, and so be responsible for operating PAYE. However, in the following circumstances, the client will be responsible for operating PAYE:-
- where the client pays all or part of the worker’s remuneration, including taxable reimbursements of travelling expenses, direct to the worker;
- where the client pays a third party, other than the agency, at the worker’s insistence, e.g. on being presented by the worker with an invoice payable to the third party; and
- where the worker is engaged through a foreign agency, or where payment for the worker’s services is being made to another party outside the UK.
For an agency worker, the client’s premises at which he renders his services will be treated as his base, or normal place of work. Any reimbursement of travelling expenses between his home and the client’s premises will, therefore, be taxable earnings to which PAYE should be applied, whether they are reimbursed by the client or the agency.
It should be noted that the payments to the worker are only deemed to be earnings for the purpose of operating PAYE. The effect of the legislation is not to make someone who would otherwise be treated as self-employed, an employee (see Employment Appeal Tribunal case of Ironmonger v Movefield Ltd t/a Deering Appointments (1988) IRLR 461).
Agencies or clients may be required to make a return on form P38A/P38A(F) of any payments to agency workers, giving details of the individual workers and the amounts paid to each.