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Agency Workers Factsheet

By Low Incomes Tax Reform Group

Obtaining temporary work via an agency can be a good option if you are struggling to find a permanent job or do not want to tie yourself down for too long. However there are some complexities to do with your tax and employment law status that you should be aware of. We tell you more in this factsheet.

What is my tax position as an agency worker?

Let’s start with a look at the basic ‘agency’ arrangement: in a typical situation, the agency will supply you to an ‘end client’. You will usually perform tasks under the day-to-day supervision of someone at the end client location but will send time sheets to the work agency, who will pay you.

Technically, you are usually neither an employee of the end client nor of the agency, however under a special rule, the agency is responsible for deducting income tax and National Insurance contributions (NIC) from the salary paid to you, under the Pay As You Earn (PAYE) system. They must also pay employer NIC. This is a cost to the agency, but it is usually covered in the fee that is charged to the end client by the agency.

Please note that due to the way the system works, PAYE may not always operate smoothly for agency workers who change agencies a lot. Find out how to check you are not paying too much or too little tax on our website here: www.litrg.org.uk/tax-guides/employed/how-do-i-work-out-my-tax

For other top tips on managing your tax affairs as an agency worker, see the section at the end of this factsheet.

What are my employment rights?

Typically agency workers are ‘workers’ for employment law purposes (the category that sits somewhere between employees and the self-employed) and, as such, are entitled to basic protections, for example being paid at least the minimum wage, Statutory Sick Pay (SSP), auto enrolment and paid annual leave. More information on your rights as a worker can be found at www.gov.uk/employment-status/worker

Under The Agency Workers Regulations (AWR), agency workers are also allowed to use any shared

facilities (e.g. a staff canteen or childcare) from the first day they work in an assigned location. After 12 weeks’ continuous employment in the same role, agency workers get the same terms and conditions as permanent employees, including pay, working time, rest periods, night work, breaks and annual leave.

You can find out more about AWR here: www.gov.uk/agency-workers-your-rights

There are rules in place that aim to stop businesses from no longer using agency workers as they get near 12 weeks of continuous work. If you think you have been unfairly treated, you should contact ACAS on 0300 123 1100 (Text Relay 18001 0300 123 1100). There is however, an exemption from this 12 week rule where an agency pays the agency worker between assignments – more on this below.

What is a ‘pay between assignments’ contract?

Where an agency can offer an agency worker a permanent contract of employment and pay the agency worker during the periods when there are no available suitable assignments, the 12 week equal treatment rule will not apply. This exemption is sometimes referred to as the “Swedish derogation”.

For the exemption to apply, lots of conditions must be met, for example the rate of pay between assignments must be at least 50% of assignment pay and calculated using a reference period (usually the 12 weeks immediately preceding the period of pay between assignments).

There can be problems with these ‘pay between assignments’ arrangements, for example agencies inventing small jobs to avoid having to pay you between assignments. There is some more information on this on the Money Advice Service website:

 www.moneyadviceservice.org.uk/en/articles/pay-and-benefits-for-temps-and-agency-workers

I incur a lot of travel expenses as an agency worker – am I entitled to any tax relief?

You may work on lots of different engagements and may incur substantial travel costs in getting to your various work locations. Unfortunately, agency workers are not normally entitled to tax relief on the home to work travel and subsistence expenses they incur (although your workplace may be ‘temporary’ in the ordinary, natural meaning of the word, they are not ‘temporary’ for the purposes of meeting the tax law question!) Many people think this is unfair and this is one of the reasons for the rise of umbrella companies – see our website for more information on umbrella companies: www.litrg.org.uk/tax-guides/ employed/am-i-employed-self-employed-both-or-neither

Travel expenses are usually tax deductible if they are incurred while working (as opposed to getting to work). However, the rules also allow:

  • Trips from your assignment office or other work location to visit a customer or other workplace, and can also include travel directly from your home to visit a customer or to another workplace (unless the journey is practically the same as the journey from your home to your normal place of work, for example, because the customer lives near your office).
  • Travel expenses of those who have a 'travelling appointment', (i.e. where the duties themselves inherently involve travelling) such as a delivery driver or meter reader, are also allowable. A person who holds a travelling appointment can get relief for all their travelling expenses (even where the journey starts from home!). Where he or she has to attend an office or depot at the start and end of the day to report in or receive instructions say, travel between there and home is not allowable.

Travel expenses, continued...

  • Although not ‘travelling appointments’ as such, HMRC also accept that travel expenses of agency workers who undertake a number of different jobs for an end client on the same day are allowable. This rule is intended to cover people such as home care nurses or domestic cleaners. In these cases, HMRC say that they will accept that the cost of travel between different jobs on the same day is allowable, however they will not accept a deduction for the cost of travel from home to the first job of the day or to home from the last job of the day.
  • Following on from this, they also accept that when an agency worker incurs expenses in travelling between the premises of two or more end clients in the course of a day, the expenses of travelling from one to the other are allowable provided that the end clients were all obtained through the same agency, and the worker starts and finishes the day at his or her own home.

Example: Neil lives in Reading and works for a construction agency. The agency arranges for him to work for a week as a labourer on a property development in the former athletes’ village in the Olympic Park. On day 3, he gets a call from the agency telling him to drop what he is doing (they have cleared it with the property developers) and spend the afternoon at the Maidenhead crossrail site as someone has phoned in sick and they urgently need an extra pair of hands. Neil gets in his car after his morning’s work in East London and drives about 66 miles round the M25 and up the M4 to Maidenhead. 

Generally, travelling expenses between two different ‘employments’ are not allowable, however under HMRC’s special rule they will probably accept a claim for the 66 miles in these circumstances.

Neil can use the HMRC approved mileage rate of 45p per mile (for the first 10,000 miles and 25p thereafter), as the basis of his claim, worth £29.70. Neil can make a claim for tax relief at the end of the tax year, resulting in a tax refund of £5.94 (£29.70 @ 20%, as Neil is a basic rate taxpayer).

We provide further help and guidance on claiming back expenses, including an annotated example of form P87 (the form you use to claim them), in the section of our website ‘Forms’:

 www.litrg.org.uk/useful-links/useful-tools/forms/form-p87-%E2%80%93-claim-tax-relief-expenses-employment

Can I claim tax credits/Universal Credit as an agency worker?

Yes, although you need to work a minimum number of hours each week to get Working Tax Credit (WTC). The number of hours required (16, 24 or 30 as the case may be) will depend on your circumstances. If your work pattern changes from week to week, depending on how much work the agency has for you, you and your employer must decide how many hours you (usually) work.

If you are working through an agency, you can qualify for WTC for the period in which you are actually working if it is expected to last at least four weeks. It is not sufficient simply to be registered with an agency and available for work, you must actually be working. Due to the rules about gaps between jobs and stopping work, it may be possible to qualify for WTC continuously if you start work again within a short period.

For more information on WTC see our sister website, RevenueBenefits: www.revenuebenefits.org.uk/tax-credits/guidance/how-do-tax-credits-work/entitlement/wtc-elements/#Variable hours

You may be able to talk through your specific circumstances with an adviser on HMRC’s tax credit help‐ line: 0345 300 3900 (Textphone: 0345 300 3909).

Depending where you live, you may only be allowed to claim Universal Credit rather than tax credits (you can check this using our postcode tool: http://universalcreditinfo.net/). Unlike WTC, for Universal Credit, you do not need to work a minimum number of hours to qualify but there may be a minimum amount that you are expected to earn. You can find out more about Universal Credit on our website Revenue‐Benefits: http://revenuebenefits.org.uk/ universal-credit/

Tips for managing your taxes

As explained previously, PAYE may not always operate smoothly for agency workers who change agencies a lot, meaning that you may not always pay the right amount of tax throughout the year.

Example: Jazz signs up for a marketing agency and starts an eight month long assignment for them in April 2018 during which she earns £1,200 per month. A tax code of £1185L is allocated, which tells the agency she can have £988 of tax free pay each month and that tax of £42.40 is due on the rest (over 8 months this equals £339.20).

She has a few months off, then finds an assignment through another agency (she wants to stay on the books of the first agency in case they come up with a better role). Because this is technically a second job, a BR tax code will be allocated meaning 20% tax is deducted on every pound. She earns £250 a week for 8 weeks. Her weekly tax deductions are therefore £50 (£400 in total over the 8 weeks).

At the end of the tax year, because of the availability of the £11,850 personal allowance, Jazz has overpaid £739.20 tax (i.e. everything that was deducted). This will eventually be refunded to her by HMRC after the end of the tax year.

However, there are a number of simple things that agency workers can do to help ensure PAYE operates as smoothly as possible for them throughout the year:

  • If you have decided to finish with an agency, do not just assume that they will know to close down your payroll record once your last assignment has finished. Make sure you inform them you are leaving and request your P45. Unless you do this, the agency may consider that you are available for work and will keep you on ‘the books’ until they carry out a database cleansing exercise. This means 1) that you will not be able to provide your new employer with a P45, meaning an emergency tax code will need to be used and/or that 2) HMRC will have a ‘live’ employment record for you, meaning that they may consider a 20% flat rate deduction appropriate for your new job.
  • Sometimes the issue of a P45 by a former agency can be delayed (often due to large numbers of workers coming and going). It may be useful to know that by law, you must be issued with a P45 as soon as possible once you have finished your job. P45s may now also be issued electronically (for example as an email attachment) – hopefully making it easier for you to get it.
  • When you receive it, keep your P45 somewhere safe so you are able to provide it to your new employer – this may sound obvious, but please be aware that it is not possible for employers to issue duplicate P45s in the event that the original is lost or destroyed.
  • Where you do not provide a P45 or a starter checklist, emergency tax will likely take the form of a flat rate 20% deduction (code ‘0T’ – meaning you have no personal allowance allocated to you), even if you only have one job; however this can be displaced by providing your P45 or a starter checklist to your new employer.

This factsheet was written by the Low Incomes Tax Reform Group. Everything we do is aimed at improving the tax experience of low income workers. LITRG do not offer an advice service, but our website is full of general helpful tax information, including more on PAYE for employees and pensioners: www.litrg.org.uk