Agency tax, agency workers

As the recruitment and supply industry has evolved, so have the tax rules.

On the face of it, tax rules for agencies, contractors and workers should be fairly straightforward. All the tax rules are generally based on the employment status of an individual as regards the work being undertaken. Liability for tax then follows as determined by the legislation, primarily contained in ITEPA 2003.

Unfortunately, the rules are often far from simple, with risks that can catch out the unwary.

Since 1975 recruitment agencies have generally been required to pay employment tax and NICs on payments made to individual agency workers. IR35 has been around since 2000, and since 6th April 2017 new rules (Chapter 10 “IR35”) have applied to recruitment businesses that supply contractors to public authorities.

The Chapter 10 “IR35” rules were extended to the private sector (excluding small businesses) in April 2021, making this a key area of interest for all hirers and recruitment businesses using contractors. Other rules apply to ‘false self employment’ and various freelancer and contractor payroll models, and HMRC is set upon its campaign to tackle tax avoidance.

Supply chain compliance

This is a key part of the equation for hirers and agencies. Having the right contracts in place that reflect the arrangement is critical to minimise risk, but so is compliance by the party you are dealing with. Independent audit and accreditation services are available through our group associated services, so ask us about the options available to give you the additional peace of mind you may be looking for.

For recruitment agencies, hirers and contractors we also offer IR35 contract terms reviews as well as representation and advice in the event of an HMRC investigation.

More information on agency workers and tax?

Read more about Employment status, IR35 and for contracts generally see contracts, terms of business and auto updates.