ESM10018 | off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: responsibilities of agencies and other parties in the chain

Section 61N Chapter 10, Part 2 ITEPA 2003

Regulation 14 Social Security Contributions (Intermediaries) Regulations 2000

Agencies and other parties in the contractual chain (collectively referred to as ‘agencies’) will have responsibilities under the off-payroll working rules. Agencies should check who they contract with so they know what the labour supply chain looks like. Where the agency sits in the contractual chain will determine the extent of any responsibilities. All agencies in the chain will have the responsibility for passing on the SDS (ESM10012) if there are other persons between them and the worker’s intermediary in the contractual chain. If an agency is the last qualifying person (ESM10017) in the contractual chain it will be responsible for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due. This will be the case even where the client gets the decision wrong but took reasonable care in coming to its conclusion and issued the SDS to the worker and the party it contracts with (see ESM10012 and ESM10014).

Agencies will not be responsible for determining the status of a worker, this rests with the client. If the client subcontracts determining the worker’s status, or the production of the SDS, it will remain responsible for ensuring the accuracy of the determination and ensuring that the SDS is passed to the parties it is responsible for passing the SDS to.

Where an agency in the chain is not the lowest qualifying person above the worker’s intermediary (ESM10017), on receipt of the Status Determination Statement (SDS) it should provide it to the next person in the chain. If it does not, the responsibility for deduction of tax, NICs and apprenticeship levy and paying these to HMRC will rest with it, as the person below it in the chain will not be a qualifying person as they have not received the SDS.

Where an agency in the chain does not receive the SDS from the person above them in the chain, it is not a qualifying person, and will not have the responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due. The person the client contracts with can request the client confirms its size if it does not receive a SDS (see ESM10011A).

Offshore agencies - In more complex chains where there are offshore agencies involved, UK agencies will need to be aware that those offshore agencies are not qualifying persons. If the only agency below the UK agency is offshore, the UK agency is the lowest qualifying person. If an offshore agency sits between two UK agencies, the first UK agency will be the only qualifying person until the offshore agency passes the SDS to the lower UK agency. In other words, the first UK agency will need to ensure the other UK agency receives the SDS. Simply passing the SDS to the offshore agency will not move responsibility away from it.

Where an agency receives the SDS, the off-payroll working rules apply, and it would be classed as the deemed employer (ESM10017), it must operate PAYE (See ESM10019) to deduct tax and NICs and pay these to HMRC. It must also pay the apprenticeship levy, if due.

Where payments are subject to PAYE under Chapter 10 (income tax) / Part 2 (NICs) you do not need to consider the Construction Industry Scheme. For more detail see ESM10004A

The size conditions (ESM10006) only apply to clients. The size of the agency, fee-payer/deemed employer is irrelevant in determining whether the off-payroll working rules apply or not, so a small-sized fee-payer will still be responsible for applying the off-payroll working rules, even if they are not medium or large-sized.