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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Using an agency to find a carer

If you are looking for a personal assistant (PA) or carer to help you live independently at home, one option is to ask a care agency to find you a suitable PA. You can pay for an agency PA using your own money or, if you qualify for government support, you may be able to use that money to pay for an agency PA.

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Types of care agency

There are two main options - an introductory agency or a fully managed agency.

A fully managed care agency will recruit, train and supervise the PAs they supply, directly. They take complete responsibility for the management of the care service. With a fully managed service, you pay the agency and the agency will pay the PA.

With an introductory agency, training and background checks are provided, but you (as the client) then pay the PA directly using government funding or your own money. You also take responsibility for managing them (including finding a replacement if the PA is off sick or on holiday).

If the introductory agency stays involved in the arrangement after the initial match (for example, we have heard of introductory agencies trying to move workers around after the initial match but also instances where they are involved in paying the worker), then it is probably not a genuine introductory agency. It may be trying to avoid the costs and obligations that go with being a managed agency (see below).

There are important differences between the two – for example, introductory agencies are not regulated by the Care Quality Commission (England’s regulator of health and social care services), whereas managed agencies are.

There are tax differences too as managed agencies fall within the scope of HMRC’s agency legislation, whereas introductory agencies (provided they are genuinely only making the introduction) don’t. The agency legislation means that agencies who pay workers may need to operate PAYE on the payments they make to workers. If you come across an introductory agency that potentially falls within the agency legislation but is not operating PAYE – then you should report this to HMRC so that this can be investigated.

Both types of agency fall under the remit of the Employment Agency Standards Inspectorate (EAS), introductory agencies as employment agencies and managed agencies as employment businesses. Neither type of agency can do certain things (for example, both employment agencies and businesses are prohibited from charging fees to workers for finding or trying to find them jobs) but additionally, employment businesses have extra requirements. If you have concerns about the business practices of an agency you have had contact with, you should let the EAS know.

Using a fully managed agency

If you take on a PA through an agency that pays and manages the PA, under the agency legislation, the agency will be the employer and will be responsible for many things including deducting tax and National Insurance contributions under PAYE.

You will enter into an agreement with the agency which sets out what tasks the PA will cover and the terms and conditions covering your payments to the agency and other important issues.

The rates charged by managed agencies for agency PAs may vary and may appear higher than employing a PA directly. This is because the agency will be responsible for all underlying employment costs such as holiday pay and sick pay and so they factor this into the rates they charge to the users of their services. As they are a commercial business, they will also want to build in a margin for themselves.

One advantage of using a managed agency is that they will be able to provide cover for sick leave or annual leave. You will not have to deal with the tax and employment law responsibilities that come with taking on your own PA.

One disadvantage is that you may be sent different agency PAs rather than building a relationship with just one person.

The Care Quality Commission and the United Kingdom Home Care Association can give you some information on what to look for when looking for an agency to supply your PA. Their websites allow you to search for home care agencies in your local area and contain inspection reports on individual home care agencies.

Using an introductory agency

There are many introductory agencies in the care sector that purport to introduce self-employed PAs (particularly live-in ones) to people who need care. The introductory agency then charges a fee for its services.

Some introductory agencies say that the PAs they provide are self-employed, saying things in the marketing material like ‘(we) provide families seeking care with the opportunity to select their own independent, self-employed carer’, ‘our professional carers are self-employed for tax purposes’, and ‘you won’t have to liaise with the tax office or worry about holiday pay and sick pay’. But to be clear - if you find your PA through an introductory agency and the agency say they are self-employed, it is still your responsibility to check.

Based on HMRC’s guidance (in ESM4015), and the case of Chatfield-Roberts, most live-in carers are likely to be employees and not self-employed under the general status tests.

You should check the status of the PA you are matched with yourself and not rely on what you are told by the introductory agency. Just because the agency falls outside of the agency legislation and there is no need for the agency to operate PAYE, this does not mean the worker is self-employed by default. Falling outside of the agency legislation just means that the agency doesn’t have a PAYE obligation.

Once your PA has been matched with you, it is for you, as the person engaging the PA, to decide whether you need to treat them as an employee or self employed by applying the general status tests. Treating a PA as self-employed because an introductory agency says so (when they are in fact your employee), leaves you potentially non-compliant with your tax and employment law obligations and potentially facing significant back-payments and even penalties. Make sure you understand your PA’s employment or self-employment status for yourself before they start work.

‘Self-employed’ agency staff/PAs

In general, most fully managed agency PAs should be taxed through PAYE under the agency legislation, which means the agency collects tax and National Insurance from their wages and pays it over to HMRC.

Where the agency has to operate PAYE then it also has to pay employer National Insurance in respect of the worker's wages. This is a cost to the agency, however it is usually covered in the fee that is charged to you, as the end client, by the agency.

Historically, some managed agencies tried to avoid having to operate PAYE for workers – this meant that their costs were reduced, the benefit of which was sometimes passed on to the end client by charging slightly lower fees. They did this by saying that the agency worker was self-employed, so that the agency worker had to pay their tax and NIC to HMRC themselves and there was no employer NIC to pay.

However, treating an agency worker as self-employed like this, left them in a vulnerable position and meant that the government was losing money.

There are therefore rules in place since April 2014, which essentially say that the only time a managed care agency can escape operating PAYE is where the agency worker is not under the supervision, direction or control (or the right thereof) of any person (including the end client) as to the manner they undertake their work. Please note that agency workers are assumed to be under supervision, direction or control, unless it is shown otherwise.

As such, and as part of the sign-up process, they may ask the end client (you) to complete a checklist or questionnaire, in writing for their records, so that they can establish whether the agency worker will be under supervision, direction or control (and thus, whether they have to operate PAYE).

If you decide to use a managed agency to provide you with a PA and you find yourself in the situation where you are asked questions about what supervision, direction or control the worker will be under, you must answer these questions accurately and carefully. In the event of an enquiry by HMRC, any questionnaires you have completed will be closely examined and HMRC could come to you instead of the agency for any unpaid PAYE in situations where it should have been operated but was not, depending on their interpretation of the information provided by you to the agency.

Managed agencies must send details to HMRC of agency workers they place with end clients where they do not operate PAYE. This means HMRC have visibility over agency worker engagements.

HMRC provide extensive guidance which includes examples of where HMRC would consider that the manner in which the agency worker provides their services is not subject to supervision, direction or control.

From the guidance, we can see HMRC consider that supervision, direction and control are best defined as follows:

  • Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.
  • Direction is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often coordinate how the work is done, as it is being undertaken.
  • Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.

HMRC also give a helpful example of where they think supervision, direction and control would not apply in the context of a PA (see page 14 of the document accessed through the link). However, where you give instructions to the PA and have procedures which must be followed by them, it is likely there will be supervision, direction or control over the manner in which the services are provided and therefore a PAYE obligation on the agency.

It may be tempting to give the agency information which means that they do not operate PAYE, as this may mean lower costs for you. However, where there is any element of doubt, then it is best to err on the side of caution and tell the agency that the agency worker will be under your supervision, direction and control, so as to protect yourself as best as possible from any potential problems with HMRC at a later date.

Travel expenses and supervision, direction or control

Managed agency PAs often work on lots of different engagements and may incur substantial travel costs in getting to their various work locations, from their homes. However, agency PAs (and other temporary workers employed through an employment intermediary) are prevented from claiming relief on their home to work travel and subsistence expenses if they are under the supervision, direction or control (or the right thereof), of any person, as to the manner in which they undertake their role.

As such, you may be asked whether an agency worker who is supplied to you by a managed agency is under supervision, direction or control (of the right thereof) – as explained in more detail above. Please note that, for this purpose, workers are assumed to be under supervision, direction or control, unless it is shown otherwise.

There are debt transfer provisions that you should be aware of in situations where tax is underpaid because of false information about supervision, direction or control provided by you, to the agency.

Offshore agencies

An offshore agency means an agency that is situated outside of the UK – sometimes to in order to take advantage of lower taxes or costs or less stringent regulation.

If the agency that you use is an offshore agency, please be aware that in some circumstances (i.e. where they consider themselves outside the reach of HMRC and do not operate PAYE), you – the end client – may be obliged to operate PAYE.

HMRC’s guidance on the matter can be found in their Employment Income manual.

Although offshore agencies are not as prolific as they once were, it is important to ensure you check whether the agency that you are using has a trading address in the UK. Please remember that the Isle of Man and the Channel Islands (e.g. Jersey and Guernsey) are offshore in this context.

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