Agency PAYE warning for ECA Members
03 November 2016
When workers are supplied by an agency you must be careful not to become liable for any PAYE that could be due on payments made to them. Some agencies are increasingly taking advantage of contractual loopholes which could place the PAYE burden instead on the contractor.
The general rule is that an agency should pay PAYE in respect of them, or be confident that if the workers are supplied to them by other firms in a chain that one of those other firms has operated PAYE on individual workers wages. That is to say the agency should know that PAYE is being operated on a workers wages by themselves or someone in the chain of suppliers. This has been the law since April 2015.
Generally speaking you should be able to tell if PAYE is not being paid in a chain if the labour you are offered is surprisingly cheap. As we all know, cheap can be for a reason and cheap is not always a bargain.
Unfortunately there are agencies that are of the opinion that they do not have to operate PAYE because they have found a loophole. Take care.
Usually the loophole they think works is to get written assurances from the end user of the labour (that is the firm like you) that the worker will not be supervised, managed, controlled and directed and therefore as a result PAYE is not due.
Once the agency can show HMRC that they did indeed hold these written assurances, any liability for PAYE would pass away from the agency and to the end user of labour and or the firm that gave the assurances (ie you) if the worker should be paid within PAYE, because in the reality they were in some way supervised, directed or controlled.
It seems that most firms who need labour in from an agency are going to tell the workers what to do in some shape or form. Agency workers may be highly trained but they are there to undertake your work with very expensive materials that you have bought, sometimes on sites where there are high standards of technical expertise and safety required. As the responsible contractor it would be unlikely that you would use a worker whom you could not direct in any way.
So what form would these ‘assurances’ take? It is easy for you to think that you have never given any ‘assurances’ and would not give them, but do read any contract you have with any agency to make sure that the contractual terms do not say that you will not supervise, manage, control, direct etc. ‘Assurances’ rarely exist as separate specific documents; they are just part of the contractual terms. It’s therefore important to read the entire contract you sign for any such clause.
But better still, when in negotiation with an agency make sure that you put in writing that you will expect to supervise, manage, control, direct any labour that they provide in some circumstances. Then HMRC can never suggest that you were party to a fraud or that you knowingly accepted liability for PAYE in order to get cheap labour.
For more information on this, please contact our employee relations team on 020 7313 4804.