Who’s your client? A fresh look at the agency rules

Prisma Recruitment Ltd [2023] UKFTT 291 (TC) is an interesting case, and perhaps carries lessons for all taxpayers.

Prisma operated what the First-tier Tribunal (‘FTT’) described as an employment business, engaging and payrolling temporary and contract workers who were introduced to customers under an agency contract.

The rules specifying the circumstances in which an employment business is required to treat its workers as employees for tax purposes and to operate PAYE on payments to them have changed over the years.  Some fundamentals have remained the same, though.  For the rules to apply there must be a contract between ‘Agency’ and ‘Client’ pursuant to which ‘Worker’ personally provides services to ‘Client’ which are not ‘excluded services’.

One of the ways in which services count as ‘excluded services’ is where the services are provided at premises which are ‘neither controlled or managed by the client nor prescribed by the nature of the services’.  It follows, therefore, that in order to determine whether services are ‘excluded’ you need first to identify the ‘the client’.

Prisma supplied workers to a workplace consultancy business with which it was not connected, called BGM.  BGM was described by the FTT as ‘in the business of workplace change. It was a consultancy providing services to its clients, including RBS, enabling them to adopt “agile” working practices and reduce the space needed for their operations.’

Although BGM had its own offices, none of the workers provided to it by Prisma carried out their duties there.  Sometimes (for example, to carry out a space utilisation survey) workers were at the premises of BGM’s clients, but most of the time they could and did work wherever they pleased including at home or in coffee bars – see, incidentally our note of last year on the tax consequences of doing so.

Historically, Prisma had operated PAYE on payments to its workers.  The FTT found that this was because the company had not (until the events which gave rise to the appeal) considered the status of the workers, but had been content to operate the ‘agency’ legislation on the basis that the full cost would be recovered from customers.

In 2013, for reasons that we don’t need to consider, the company re-examined the rules carefully and concluded that it didn’t need to operate PAYE after all.  It tumbled to the fact that its client was BGM, the workers didn’t work at BGM’s premises, and the services were therefore ‘excluded services’.

HMRC contended that for the purposes of the legislation the ‘client’ in question was not BGM but the client of BGM for whom the work was done.  The reported case gives little insight into how HMRC sought to justify that contention and it is frankly difficult to see how on any reading of the legislation they could have done so.  The FTT accordingly had ‘no hesitation in finding that Prisma’s client, for the purposes of section 44 of ITEPA was BGM’.  For good measure the FTT noted that even if HMRC’s contention had been correct, section 44 would still not have applied because there was no contract between Prisma and BGM’s client.

HMRC do not come out of the case well, and not only for seeking to sustain an unsustainable position.  They cited a number of procedural and administrative reasons (all happily rejected by the FTT) why Prisma should not be allowed to have the case heard including denying either that they had made an appealable decision on which the FTT could opine or that Prisma had made a valid claim to overpayment relief.  And, astonishingly, back in 2014, HMRC had (allegedly) refused even to consider Prisma’s argument that PAYE tax was not due unless Prisma first agreed to pay the tax and provided ‘a written opinion from a lawyer or other expert’.

The lessons, then?

Read the law; stick to your guns; and don’t be bullied by HMRC.

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Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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