Income Tax (Earnings and Pensions) Act 2003

2003 Chapter 1 - continued

PART 2, EMPLOYMENT INCOME: CHARGE TO TAX - continued

 

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CHAPTER 7

 

APPLICATION OF PROVISIONS TO AGENCY WORKERS (note 1)

 


Agency workers

44    (Note 2)

Treatment of workers supplied by agencies
 

 

    (1) This section applies if-
 

 

(a) an individual ("the worker") personally provides, or is under an obligation personally to provide, services (which are not excluded services) to another person ("the client"),

 

(b) the services are supplied by or through a third person ("the agency") under the terms of an agency contract,

 

(c) the worker is subject to (or to the right of) supervision, direction or control as to the manner in which the services are provided, and

 

(d) remuneration receivable under or in consequence of the agency contract does not constitute employment income of the worker apart from this Chapter.

(note 3)

    (2) If this section applies-
 

 

(a) the services which the worker provides, or is obliged to provide, to the client under the agency contract are to be treated for income tax purposes as duties of an employment held by the worker with the agency, and

 

(b) all remuneration receivable under or in consequence of the agency contract (including remuneration which the client pays or provides in relation to the services) is to be treated for income tax purposes as earnings from that employment.

45    (note 4)  (note 5)

Arrangements with agencies
 

 

If-
 

 

(a) an individual ("the worker"), with a view to personally providing services (which are not excluded services) to another person ("the client"), enters into arrangements with a third person ("the agency"), and

 

(b) the arrangements are such that the services (if and when they are provided) will be treated for income tax purposes under section 44 as duties of an employment held by the worker with the agency,

 

any remuneration receivable under or in consequence of the arrangements is to be treated for income tax purposes as earnings from that employment.
 

46    (note 6)  

Cases involving unincorporated bodies etc.
 

 

    (1) Section 44 also applies-
 

 

(a) if the worker personally provides, or is under an obligation to personally provide, the services in question as a partner in a firm or a member of an unincorporated body;

 

(b) if the agency in question is an unincorporated body of which the worker is a member.

 

    (2) In a case within subsection (1)(a), remuneration receivable under or in consequence of the agency contract is to be treated for income tax purposes as income of the worker and not as income of the firm or body.
 

 


Supplementary

47    (note 7)

Interpretation of this Chapter
 

 

    (1) In this Chapter "agency contract" means a contract made between the worker and the agency under the terms of which the worker is obliged to personally provide services to the client.
 

 

    (2) In this Chapter "excluded services" means-
 

 

(a) services as an actor, singer, musician or other entertainer or as a fashion, photographic or artist's model, or

 

(b) services provided wholly-

 

(i) in the worker's own home, or

 

(ii) at other premises which are neither controlled or managed by the client nor prescribed by the nature of the services.

 

    (3) For the purposes of this Chapter "remuneration"-
 

 

(a) does not include anything that would not have constituted employment income of the worker if it had been receivable in connection with an employment apart from this Chapter, but

 

(b) subject to paragraph (a), includes every form of payment, gratuity, profit and benefit.

 

 

 

 

 

 

 

 

© Crown copyright 2003
Prepared 12 March 2003

 


Note 1:  Chapter 7: Application of provisions to agency workers

Overview

175.     In broad terms, workers must normally be engaged under either a contract of service (in which case they are employed) or a contract for services (in which case they are self-employed). However, some workers may be contracted to an agency to perform duties for the agency's client. This Chapter, deriving from section 134 of ICTA, provides that the remuneration of such agency workers is treated as if it is employment income.

176.     The rules have been restructured into four sections. There is an increased focus in subsection (2)(a) of section 44 on the agency contract (defined in section 47) under which the services provided to the client are treated as duties of an employment held by the worker with the agency. The agency pays the remuneration in a normal case.

 

 Note 2:  section 44: Treatment of workers supplied by agencies

177.     This section derives from section 134(1), (4) and (5) of ICTA.

178.     The conditions are set out in subsection (1). These have been set out in more colloquial English (personally providing services instead of rendering personal services) and in the case of subsection (1)(c), it has been made more obvious that the person supervising the manner of the work is not specified.

179.     If all of the conditions in this Chapter are satisfied, then it operates so that:

·         the services provided by the worker under an agency contract are treated as the performance of the duties of an employment with the agency; and

·         the remuneration receivable is treated as earnings from that employment.

180.     The words in brackets in subsection (2)(b), which provide that the remuneration which is treated as earnings of an employment includes any remuneration paid by the client, derive from section 134(4) of ICTA.

181.     The extra focus on the agency contract is achieved by the definition of this being taken to section 47 and more significantly by the words "with the agency" in the last part of section 44(2)(a). The duties (the services provided to the client) are the deemed duties of an employment held with the agency. See Change 10 in Annex 1.

 

 Note 3:  Change 10: Application of provisions to agency workers: treatment of services under agency contract: section 44(2)

This provides that the remuneration of workers contracted to an agency is treated as if it is employment income.

Section 134(1) of ICTA provides that if certain conditions are satisfied the services which the worker renders or is under an obligation to render are to be treated as if they were the duties of an employment held by the worker.

It is unclear from section 134(1) whether the deemed duties of employment are treated as performed for the agency or the agency's client.

Section 44(2)(a) of the Act provides that the services which the worker provides, or is obliged to provide, to the client under the agency contract are to be treated as duties of an employment held with the agency. It is the agency that will pay remuneration in a normal case.

This change has no implications for the amount of tax paid, who pays it or when. It affects administrative matters only (and does so only in principle and not in practice).

 

 Note 4:  Section 45: Arrangements with agencies

182.     This derives from section 134(5), (the reference to "excluded services"), and from section 134(6) of ICTA. The provision is aimed at remuneration paid by the agency while an agency worker is on their books, for a period in which the worker is not assigned to any particular client.

183.     This section refers to "a third person ("the agency")" in place of the phrase "another person" used in ICTA. See Change 11 in Annex 1.

 

 Note 5:  hange 11: Application of provisions to agency workers: arrangements with agencies: section 45

This relates to the case where remuneration is paid by an agency while an agency worker is on their books for a period in which he is not assigned to a particular client.

Section 134(6) of ICTA provides that where an individual enters into arrangements with "another person" with a view to rendering services in a situation where the services will be treated as the duties of an employment under subsection (1) of that section, any remuneration receivable under or in consequence of the arrangements is to be treated as emoluments.

Section 45 of the Act substitutes "a third person ("the agency")" for "another person" to make clear the identity of the party with whom the worker enters arrangements. This is how the provision was intended to apply and has been applied in practice. Any remuneration receivable under or in consequence of the arrangements is to be treated as earnings from an employment held by the worker with the agency.

This change has no implications for the amount of tax paid, who pays it or when. It affects administrative matters only (and does so only in principle and not in practice).

 

 Note 6:  Section 46: Cases involving unincorporated bodies etc.

184.     This section ensures that the agency rules apply in circumstances where the worker is a partner or member of an unincorporated body. They also apply in the situation in which the worker is a member of the agency itself, eg a professional association.

185.     It derives from section 134(2) and (3) of ICTA.

 

 Note 7  Section 47: Interpretation of this Chapter

186.     This section provides definitions of terms used in this Chapter. The agency contract is defined in terms deriving from section 134(1)(a) and (b). The scope of excluded services is set out in subsection (2) and derives from section 134(5) of ICTA.

187.     There is a definition of remuneration in subsection (3) which derives from section 134(7) of ICTA. This section draws on the language of section 62, which defines earnings in relation to an employment, but with its reference to "every form of payment" the scope appears wider. The section 62 definition is limited to money or money's worth. The definition here is restricted, however, by the words of subsection (3)(a). This makes it clear that the purpose is to capture remuneration that would have been taxed had the worker been an employee of the agency or the client, but no more than that.

188.     As with section 62 the language of this definition has been modernised, for example removing the word "perquisites", while retaining the import of the source legislation.