ESM2044 | Agency and temporary workers: agency legislation - provisions from 6 April 2014: fraudulent documents

Part 2, Chapter 7 Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapter 7, sections 44(4) to 44(6)

HMRC recognise that an employment agency may be provided with a fraudulent document(s) intended to demonstrate the provisions of the agency legislation do not apply to a worker’s arrangement, due to:

(i) the worker not being subject to (or to a right of) supervision, direction, or control as to the manner in which they provide the services, and/or

(ii) the remuneration receivable by the worker in consequence of providing the services already being treated as employment income before the provisions of the agency legislation are applied.

In such occurrences, where the employment agency has been unaware the document was fraudulent and it has acted upon that document in good faith, then that employment agency will not be held to be the employer of the worker for tax and NICs purposes. The party that will instead be held to be the employer of the worker for tax and NICs purposes is explained below:

(i) Fraudulent document provided by the client to demonstrate the worker was not subject to (or to a right of) supervision, direction, or control as to the manner in which they provide their services.

If, either before or after the worker begins to provide their services, the client provides the agency with a fraudulent document to demonstrate the worker is not subject to (or to a right of) supervision, direction, or control as to the manner in which they provide their services, then after the fraudulent document is provided the worker will be treated as holding an employment with the client and all remuneration receivable by the worker (from any person) in consequence of providing the services, is to be treated as earnings from that employment with the client. This will apply for both income tax and NICs purposes; therefore the client will be responsible for the operation of PAYE and the payment of Class 1 employees/employers NICs.

If that client is a limited company and it fails to pay HMRC the PAYE debt and interest accrued which it has liability, then HMRC may hold the directors of that company personally liable for paying those amounts due (see ESM2046).

(ii) Fraudulent document provided by a relevant person (see Note), to demonstrate remuneration receivable by the worker in consequence of providing the services is already being treated as employment income before the provisions of the agency legislation are applied.

If, either before or after the worker begins to provide their services, a relevant person provides the employment agency with a fraudulent document which is intended to evidence the remuneration receivable by the worker in consequence of providing the services is already being treated as being employment income before the agency legislation is applied, then after the fraudulent document has been provided the worker will be treated as holding an employment with the relevant person and all remuneration receivable by the worker (from any person) in consequence of providing the services, is to be treated as earnings from that employment with the relevant person. This will apply for both income tax and NICs purposes; therefore the relevant person will be responsible for the operation of PAYE and the payment of Class 1 employees/employers NICs.

Note: “relevant person” means a person other than the client, the worker, or a person connected with the client or with the agency who is resident, or has a place of business in the UK and is party to a contract with the agency (or a person connected with the agency) under, or in consequence of which, the worker’s services are provided, or the agency (or a person connected with the agency), makes payments in respect of the services.

If the relevant person is a limited company and it fails to pay HMRC the PAYE debt and interest accrued which it is liable to pay, then HMRC may hold the directors of that company personally liable for paying those amounts due (see ESM2046).