Agency workers and intermediaries reporting

Q: What goes in the return and when is it due?

Reporting quarterFiling deadlineLast date to replace the return 6 April to 5 July5 August5 November 6 July to 5 October5 November5 February 6 October to 5 January5 February5 May 6 January to 5 April5 May5 August The return is an HMRC spreadsheet template uploaded online, with a declaration that it is correct and complete (ESM2115). For each worker it gives identity details and engagement dates, and where pay was not in an RTI return, the name and address of the person paid, the amount paid in the quarter, and the reason PAYE was not operated. The reason is chosen from six categories: self employed, partnership, limited liability partnership, limited company, non UK engagement, and PAYE operated elsewhere (ESM2165). If the reason is self employment or a partnership, HMRC expects the agency to be satisfied that there is no right of supervision, direction or control. The return excludes the intermediary's own employees taxed through RTI, excluded services under section 47, work wholly on the UK Continental Shelf, and pure introduction fees where the intermediary is not paid for the ongoing supply of the worker (ESM2130). Records supporting the return must be kept for at least three years after the end of the tax year (ESM2185).

Q: How do both rules apply to a typical agency?

Illustration only. A small staffing agency supplies eight warehouse operatives to a distribution client and pays them gross on invoices, treating them as self employed. The client's supervisors allocate tasks, set shift patterns and require operatives to follow its safety and picking procedures, so there is a right of supervision, direction and control. The agency contracts with the client, so section 44 treats each operative as its employee and it must operate PAYE and pay employer National Insurance. If it does not, it is also a specified employment intermediary and must report each operative, the payments and the reason PAYE was not operated on its quarterly return. Reporting them as self employed would not cure the PAYE failure and would invite an employer compliance check.

Under Chapter 7 of Part 2 of ITEPA 2003 (sections 44 to 47), a worker who personally provides services to a client through an agency is treated as the agency’s employee for tax and Class 1 National Insurance if someone has a right of supervision, direction or control over the manner of the work. Separately, an agency that supplies workers without operating PAYE on their pay must send HMRC a quarterly return, due by the 5th of the month after each tax quarter.

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When do the agency rules treat a worker as employed?

ESM2034 lists the conditions, all of which must be met:

the worker personally provides services, which are not excluded services, to the client;
there is a contract between the client, or someone connected with the client, and a third party (the agency), and under or because of that contract the services are provided or the client pays for them;
the worker is subject to, or to a right of, supervision, direction or control by any person as to the manner in which the services are provided; and
the pay is not already employment income before these rules are applied.

When they apply, the worker is treated for income tax as holding an employment with the agency, so the agency must operate PAYE, and for National Insurance as an employed earner under the Social Security (Categorisation of Earners) Regulations 1978. The rules exist because a worker supplied through an agency usually has no contract of employment with anyone, so the ordinary employment status tests may not catch the arrangement.

What counts as supervision, direction or control?

ESM2037 says only one of the three is needed, it can be exercised by anyone (the client, the agency, a project manager or someone else), and only the right to it is required. HMRC looks at whether there are procedures, methods and instructions the worker must follow. Rules imposed because of the regulatory environment still count, citing Christa Ackroyd Media Ltd and Uber BV v Aslam [2021] UKSC 5.

Professional status is not an exemption. ESM2048 says a skilled professional such as a structural engineer may rarely be supervised in practice yet still be subject to a right of control. Agencies that supply workers directly to clients on a self employed basis must hold satisfactory evidence that no one has that right, and ESM2042 says a signed declaration from the worker that simply asserts this is not enough.

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When do the agency rules not apply?

ESM2032 sets out the exceptions:

the pay is already employment income, for example because the worker is employed by an umbrella company that operates PAYE;
it can be shown that nobody has a right of supervision, direction or control over the manner of the work;
the services are provided wholly in the worker’s own home, or at premises not controlled or managed by the client, unless the nature of the work requires them to be done there;
the worker is an actor, singer, musician or other entertainer, or a fashion, photographic or artist’s model.

The last three are excluded services under section 47. Workers who supply their services through their own limited company are generally dealt with under the off payroll working rules instead.

Who operates PAYE when there is a chain of agencies?

ESM2039 explains that where several UK agencies are involved, the worker is treated as employed by the agency that contracts directly with the client, and that agency must operate PAYE. If a worker is placed with a UK client by an agency based outside the UK, the client is treated as the employer under section 689. Where an overseas business supplies the worker through one or more UK agencies, the UK agency that contracts with the client is responsible. A targeted anti avoidance rule in section 46A treats a third party inserted mainly to take an arrangement outside the agency rules as the employer (ESM2041). If an agency relied on fraudulent documents showing the rules did not apply, the liability can be moved to the party responsible, and directors of a company that fails to pay the PAYE can be made personally liable (ESM2045).

Who has to send the quarterly intermediaries return?

From 6 April 2015 regulations 84E to 84H of the Income Tax (PAYE) Regulations 2003 have required certain intermediaries to report workers whose pay is not in their Real Time Information (RTI) submissions. ESM2080 defines a specified employment intermediary as one that:

is an agency within the meaning of section 44 ITEPA 2003;
supplies more than one person to provide services to a client under its contracts;
makes one or more payments, including to third parties, for those services that are not in an RTI return, either because of a reporting failure or because the worker is not, and is not treated as, an employee; and
supplies services in the UK, or by UK residents if the services are provided abroad.

Where there is more than one intermediary in the chain, the duty falls on the one that contracts to supply the worker to the client (ESM2090). An agency that operates PAYE for all its workers has nothing to report (ESM2105). A personal service company supplying only its own director is not a specified intermediary, but a company that subcontracts to another company, or supplies several workers to a client without an agency and pays them without PAYE, must report (ESM2110). Workers supplied through an umbrella company are reported under category D, but where the umbrella included the pay in its own RTI submission, the agency only reports identity and engagement details, not payment amounts (ESM2125 and ESM2165).

What goes in the return and when is it due?

Reporting quarter	Filing deadline	Last date to replace the return
6 April to 5 July	5 August	5 November
6 July to 5 October	5 November	5 February
6 October to 5 January	5 February	5 May
6 January to 5 April	5 May	5 August

The return is an HMRC spreadsheet template uploaded online, with a declaration that it is correct and complete (ESM2115). For each worker it gives identity details and engagement dates, and where pay was not in an RTI return, the name and address of the person paid, the amount paid in the quarter, and the reason PAYE was not operated. The reason is chosen from six categories: self employed, partnership, limited liability partnership, limited company, non UK engagement, and PAYE operated elsewhere (ESM2165). If the reason is self employment or a partnership, HMRC expects the agency to be satisfied that there is no right of supervision, direction or control.

The return excludes the intermediary’s own employees taxed through RTI, excluded services under section 47, work wholly on the UK Continental Shelf, and pure introduction fees where the intermediary is not paid for the ongoing supply of the worker (ESM2130). Records supporting the return must be kept for at least three years after the end of the tax year (ESM2185).

What penalties apply?

ESM2190 explains that penalties are charged under section 98 of the Taxes Management Act 1970. Late or missing returns trigger an automated fixed penalty of up to £3,000, and daily penalties of up to £600 can follow for each day a return remains outstanding. A fraudulently or negligently incorrect return can attract a penalty of up to £3,000, for example where payments are significantly understated, workers are left out, or the return claims PAYE was operated further up the chain when it was not. Penalties can be appealed, and a reasonable excuse can be argued. A deleted return that is not replaced is treated as late from the original deadline. Our HMRC penalties table sets these alongside other penalty regimes.

How do both rules apply to a typical agency?

Illustration only. A small staffing agency supplies eight warehouse operatives to a distribution client and pays them gross on invoices, treating them as self employed. The client’s supervisors allocate tasks, set shift patterns and require operatives to follow its safety and picking procedures, so there is a right of supervision, direction and control. The agency contracts with the client, so section 44 treats each operative as its employee and it must operate PAYE and pay employer National Insurance. If it does not, it is also a specified employment intermediary and must report each operative, the payments and the reason PAYE was not operated on its quarterly return. Reporting them as self employed would not cure the PAYE failure and would invite an employer compliance check.

What mistakes do agencies make?

Treating a worker’s professional qualification, or a signed self employment declaration, as proof that no one has a right of control.
Assuming that because a worker invoices through their own company, the agency rules and the reporting duty fall away.
Missing a quarterly deadline because no new workers started; the duty applies to every quarter in which unreported payments were made.
Not knowing which agency in a chain holds the client contract, and so who must operate PAYE and file the return.
Failing to keep three years of records showing why PAYE was not operated.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.