There has long been legislation dealing with the provision of workers by agencies.
Broadly, the legislation applies where a worker is supplied to an end-user by an agency on terms that the end-user pays the agency (not the worker) for the worker’s services and the agency pays the worker. Where it applies, the agency is obliged to operate PAYE on the payments to the worker.
There are some refinements: for example, the legislation applies only if the manner in which the worker provides the services is subject to some right of ‘supervision, direction or control’ (that is, the worker looks a bit like an employee); and the rules don’t apply to services as an entertainer or as a fashion, photographic or artist’s model.
The rules apply only to remuneration payable to the worker. They don’t apply where the agency contracts with a personal service company (‘PSC’) established by the worker and pays the PSC. Other rules, such as ‘IR35’ or the ‘off payroll working rules’ may apply in such a case: but the agency rules cannot apply to payments made by an agency to a PSC.
It’s pretty important, therefore, for an agency to know (and, more important, to be able to demonstrate) exactly who it’s contracting with. That was the difficulty encountered by a healthcare agency K5K Ltd which appeared before the First-tier Tribunal in [2022] UKFTT 217 (TC).
Though the evidence in the case is by no means clear, it appears that some of the individuals placed by the agency (‘workers’) had PSCs and that in some cases payment for a worker’s services was made to a PSC. And HMRC accepted that if the contractual party had been the PSC, K5K’s appeal would have succeeded. That is an important point: the K5K case does not presage a general HMRC attack on agencies providing workers via PSCs.
K5K’s problem was with documentation. When it came to it, the company was simply unable to demonstrate that any PSC was involved in the contractual chain. The only contracts in place governing the relationship between the individuals who performed the work and the agency were made with the individuals themselves: there was no mention of any PSC. Further, there was no suggestion that the individuals, in signing the contracts, had done so as agents for any PSC they might own.
Thus the payments made by K5K were caught by the agency rules and the assessments (totalling over a quarter of a million pounds plus interest) stood. A high price to pay for failing to get the contractual arrangements right.
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