Why Intermediary (UK) Matters in Recruitment

In UK contracting and temporary work arrangements, an intermediary is any entity that sits between a worker and the end client who ultimately benefits from their labour. The term covers personal service companies, umbrella companies, recruitment agencies acting as the employer, and managed service providers. Understanding what counts as an intermediary, and what obligations attach to each type, is foundational for any UK agency operating in the contractor and temporary staffing market.

The term gained legal significance primarily through IR35 and the off-payroll working rules introduced from 2017 (public sector) and 2021 (private sector). These rules require the end client or, in some chain structures, an intermediary to assess whether a contractor would be considered an employee if they were engaged directly. Where the off-payroll rules apply, they shift tax liability up the labour supply chain, which means agencies need to understand their position in that chain and what responsibilities they carry.

For agency owners, the practical risk is that non-compliance with intermediary obligations can result in HMRC pursuing unpaid PAYE and National Insurance contributions from the agency, not just from the worker or the end client. The liability can be joint and several in some circumstances, and HMRC's enforcement activity in this area has increased substantially since the private sector roll-out of the off-payroll rules.

How Intermediary Works

The most common intermediary structures in UK contracting involve three parties: the worker, the intermediary, and the end client. Where a personal service company is involved, the worker owns and operates the PSC and the PSC contracts with either the agency or the client directly. Where an umbrella company is involved, the worker is employed by the umbrella, which then provides the worker's services to the agency or client under a business-to-business contract. The agency sits between the umbrella and the client, supplying labour under a contract for services.

Under the off-payroll working rules, when a contractor operates through a PSC, the end client must issue a Status Determination Statement assessing whether IR35 applies. If the client determines that IR35 applies (meaning the contractor would be treated as an employee if engaged directly), the fee-payer, which is the entity paying the PSC in the supply chain, usually the agency, becomes responsible for deducting PAYE and National Insurance before payment reaches the PSC.

Umbrella companies occupy a different position: because the worker is already an employee of the umbrella, the off-payroll rules do not apply in the same way, but umbrella companies are subject to their own compliance obligations and HMRC scrutiny. The agency that directs a worker toward a specific umbrella company has a degree of due diligence responsibility for that umbrella's compliance, even where the employment relationship sits with the umbrella.

The Conduct of Employment Agencies and Employment Businesses Regulations 2003 also impose obligations at the intermediary level, including the requirement to conduct right-to-work checks, provide key information documents, and maintain records of assignment terms.

Intermediary in Practice

Claire runs a technology contractor desk at a UK staffing agency placing developers and data engineers with financial services clients in London. After the 2021 off-payroll reform, several of her clients began issuing blanket inside-IR35 determinations for all contractor roles, requiring workers to engage through umbrella companies rather than PSCs. Claire reviewed the umbrella companies her contractors were being directed to and found that two did not appear on the FCSA or Professional Passport accreditation lists and could not provide full payroll reconciliation statements on request. She removed those umbrellas from the agency's preferred supplier list and communicated the change to contractors on active assignments, directing them to three accredited alternatives. The decision protected both the contractors from non-compliant pay arrangements and the agency from reputational exposure in an area HMRC had signalled as a priority for compliance activity.