ESM2011 - Agency workers: the agency contract and the requirement for personal service
Section 47(1) ITEPA 2003
Section 44(1)(a) ITEPA 2003 requires that a worker personally provides or is under an obligation to personally provide services to the client. When a worker is actually undertaking an assignment they are providing their personal service which will be sufficient to satisfy the condition set out at section 44(1)(a).
The fact that the worker will provide personal service whilst on a particular assignment to satisfy section 44(1)(a) will not however be sufficient to satisfy the condition set out as section 44(1)(b) ITEPA 2003, unless the worker is required under the terms of the agency contract to provide the services personally.
Section 44(1)(b) is satisfied if the services are personally provided by the worker under the terms of an “agency contract”. Section 44(1)(b) needs to be considered in conjunction with section 47(1) which defines an “agency contract” as 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. This requirement was not present in the previous agency legislation for tax, section 134 ICTA 1988.
The provision of a substitution clause within an agency contract
If under the terms of an agency contract the worker has a right of substitution, then that may indicate the worker is not obliged to personally provide services to the client. Whether or not there is an obligation to personally provide the services will depend upon whether the right of substitution is a genuine right and will depend upon the nature of the right i.e. whether the right is a limited or unfettered right of substitution. See guidance in relation to personal service and substitution at ESM0530 onwards.
If any purported right of substitution is found to be a genuine right i.e. there is no obligation on the worker to personally provide the services to the client then, for income tax purposes, the contract will not be an agency contract as defined in section 47(1) and the condition at section 44(1)(b) will not be satisfied.
There is no requirement under the NICs provisions, Social Security (Categorisation of Earners) Regulations 1978/1689, Schedule 1, for the worker to be obliged to personally provide the services to the client under the terms of an “agency contract”. For the purposes of NICs, the provisions only require that the worker does in fact render personal service i.e. that personal service is provided when the work is undertaken.
