This is a good question and there has been some speculation. Initially it was understood that agency workers would fall under chapter 7 ITEPA. The way in which the draft legislation defines an umbrella company, states “the worker is employed by a third person…” Although some commentators argued otherwise based on employment status case-law, agencies do not tend to strictly employ agency workers.
However, guidance released on 17th September clarified that “employed” means employed for tax purposes. In tax legislation there are only two employment statuses – employed and self-employed. There is no in-between like we have in employment law (the limb-B workers).
Therefore, we would suggest that as a general rule, agency PAYE will continue to be governed by the traditional agency legislation at chapter 7. Briefly, that says you must deem all your agency workers like employees for tax purposes and treat all remuneration as employment income (unless there is no supervision, direction or control, but that’s another matter we’ll park for now).
But, in the event there is non-compliance and/or a PAYE/NI tax liability, HMRC can use chapter 11 as a fall-back, handy since it includes JSL, meaning the agency and the client are jointly and severally liable.