K5K v HMRC

It has long been the view of this Firm that the tax authorities have missed a trick – to put it politely – in not pursuing Employment Agencies for unpaid tax.  This is because under Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’) workers and contractors are subject to Income Tax and Class 1 NICs on sums earned as constituting earnings from employment, and that such sums are treated as earnings from employment relating to persons providing services through an Agency (s.44 ITEPA). The workers employed by Agencies are under their direct supervision and control, and provided personal service and are hence to be regarded as employees of the Agency in this context. It is our view – and that of senior Counsel – that the worker is entitled to reclaim any payments made subsequently upon demand by HMRC from the Agency: these could (and should) have deducted these sums, did not, and as a consequence workers suffered for these subsequently when payment was demanded by HMRC. Lo and Behold, it now appears that, finally, HMRC also agrees.

In K5K Ltd -v- HMRC the Tax Tribunal has decided that these sums should have been deducted by the Agency (K5K) in this instance as : ’44 ITEPA applies to the contractual arrangements between the appellant and the relevant workers during the [relevant] period.

Aidan Loy (Legal Director C4J)

View the full tribunal case file here:  K5K v HMRC TC08540