Under the new Agency rules coming into effect in April 2015, who is responsible for paying PAYE and reporting to HMRC in the following (what I imagine will be common) scenario:-
Worker supplying services via his PSC to the end client via an Agency.
Will the ultimate test for responsibility be down to whoever has the contract with the end client (i.e. the Agency in this scenario) and, if so, will that mean that the Agency will have to satisfy itself that the PSC is operating PAYE on payments to the worker?
Thanks.
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Agency in this scenario
For the proposed new Agency legislation to apply to a worker providing their services through a PSC, all of the following qualifying conditions need to be met:
• the worker personally provides, or is personally involved in the provision of, services to another person as a consequence of a contract between that person and a third person;
• the manner in which the worker provides the services is subject to (or to the right of) supervision, direction or control by any person.
• remuneration is received by the worker in consequence of providing the services; and
• that remuneration does not constitute employment income apart from under the Agency legislation.
As is currently the case, the proposed Agency legislation will not generally apply where a worker is engaged via a PSC, as all the above criteria will not normally be met. This is because:
a) As set out above, the legislation will only apply when remuneration is received by the worker as a consequence of providing the services. Therefore dividends paid to the worker as a genuine consequence of their shareholding in the PSC will not normally fall within the new Agency legislation.
b) Similarly, the Agency legislation only applies when the worker receives remuneration which is not employment income before the provisions of that legislation are applied. Any salary paid to the worker by the PSC is already employment income so the new Agency legislation would not apply to that remuneration.
c) Loans are made by reason of the employment with the PSC. Beneficial or written off loans are chargeable to tax/NICs as earnings but do not normally arise as a consequence of the worker providing the services. As such, they would not fall within the scope of the Agency legislation.
However the Agency will have to report payments made to the PSC each quarter.
Thanks...
Thanks very much for your response.
From the looks of it, therefore, no PSC's will be caught by the rules where the workers are paid via dividends and/or salary. Is my reading correct?
What if an extra agency was involved, thus:
Worker - PSC - secondary agency - main agency - client, where the worker has a contract with the PSC, which has a contract with the secondary agency, which has a contract with the main agency, which has a contract with the client.
The worker will still be paid by the PSC as salary and/or dividends down the line, so am assuming the agency rules will not apply (for the reasons previously explained), but who, in these circumstances, will have to make the reports each quarter? Am assuming the main agency who has the direct contract with the client?
Thanks again.