Recruitment and staffing
Accountant for Recruitment Agencies in London
Agencies carry tax risk that sits nowhere else: PAYE on workers you do not employ, VAT on money that was never yours to keep, and a payroll going out weekly against invoices that come back in sixty days.
We act for recruitment businesses across London — permanent desks, temp and contract books, and agencies supplying through umbrella companies. The work is not general practice accounting with a different logo on it. An agency sits in the middle of a supply chain, and most of what goes wrong comes from that position: liabilities that belong to someone else land on you, and money that only passes through you gets treated as though you earned it.
Three questions decide most of it. Who is responsible for operating PAYE on each worker. Whether you are supplying the worker or introducing them, because that decides whether VAT applies to your margin or to the whole charge. And whether the cash will still be there on Friday. We answer all three from your contracts rather than from what the business calls itself.
Where the PAYE liability sits
Agency rules, off-payroll and umbrella chains mapped against your actual contracts.
Margin or the whole charge
Principal or agent decides your VAT — and that is settled by who contracts with whom.
Weekly out, sixty days in
Funding modelled honestly, and invoice finance accounted for the right way round.
The return nobody remembers
Quarterly employment intermediaries reports prepared and filed on time.
Who owes the PAYE, and when it is you
The starting point is the agency legislation. Where a worker personally provides services, is supplied through your agency, and is subject to supervision, direction or control as to the manner of the work, the payments are treated as employment income and PAYE has to be operated — even though the worker is not your employee and may never have appeared on your payroll.
On top of that sit the off-payroll working rules for workers who supply through their own company. Where the end client is medium or large, the client issues a status determination statement and the fee-payer — normally the agency closest to the worker’s company in the chain — has to operate PAYE on the deemed payment. Being handed a determination you disagree with does not remove the obligation; it starts a dispute process with its own deadline.
Umbrella companies changed the picture again. Responsibility for accounting for PAYE on workers engaged through an umbrella now sits with the agency that supplies the worker, or with the end client where there is no agency in the chain. The umbrella may still run the payroll day to day, but if the tax is not paid the liability can be recovered from you. That makes the choice of who you supply through a commercial decision with a tax consequence, not an administrative one.
None of this turns on job titles. It turns on the contracts, the chain and what actually happens on site. We read the terms you use with workers and with clients, map each worker type to the rule that catches it, and tell you where the exposure is before HMRC does.
VAT: are you the principal or the agent?
This is the largest number on an agency’s VAT return and it is decided by the contracts. If you supply the worker — your contract with the worker, your contract with the client, you pay the worker — you act as principal and VAT is due on the entire charge, including the part that is the worker’s pay. If you introduce a worker who is then engaged directly by the client, you act as agent and VAT is due only on your fee.
The difference is not academic. On a temp desk the wage element usually dwarfs the margin, so treating a principal supply as an agency one understates the VAT due by a multiple of the fee, and the correction arrives with interest and often a penalty. In the other direction, charging VAT on the full amount when you are genuinely an agent makes you materially more expensive to any client that cannot recover VAT — charities, much of healthcare, financial services — for no reason at all.
- Who the worker contracts with, and who can direct the work
- Who is obliged to pay the worker if the client does not pay you
- What the client’s terms say about the engagement, not just the fee
- Whether the same answer holds across every desk you run
Gross or net: what turnover really is
The principal or agent question decides the accounts as well as the VAT. As principal, turnover is the whole charge to the client. As agent, only the commission belongs in turnover and the rest is a balance sheet movement. Agencies frequently book everything gross because that is what the invoices total, and the result is a set of accounts showing several times the real revenue.
That is not a presentational quibble. Company size is tested on turnover, so an inflated figure can push a small agency into a statutory audit it does not need, cost it the small-company exemptions, and change what has to be filed publicly. It also distorts every margin ratio a lender or a buyer will look at. We settle the right basis once, document why, and apply it consistently.
Funding the gap between payday and payment
Temps are paid weekly. Clients pay on their own terms, which are rarely shorter than forty-five days and often sixty. Every new placement therefore consumes cash before it produces any, which is why agencies fail while growing rather than while shrinking. The number worth knowing is not this month’s profit but how much cash a given rate of growth will absorb.
Most agencies bridge it with invoice finance, and the accounting depends on which kind. Where the funder buys the debt and carries the risk of non-payment, the receivable comes off your balance sheet. Where you keep that risk — which is the usual arrangement — it stays on, and the advance is borrowing. Getting this backwards understates your debtors and your debt at the same time, which is exactly the pair of figures a funder re-checks at review.
We build the cash model around your actual payment profile rather than an average, and make sure the facility is reported the way the agreement is written.
The employment intermediaries report
If you supply workers to clients and PAYE is not operated by you on their payments, you have to send HMRC a report every quarter listing those workers and how they were paid. It catches agencies supplying through umbrellas and through workers’ own companies, and it applies whether or not you consider the tax position to be someone else’s problem.
The returns are due one month and five days after each quarter ends. Penalties escalate for repeated lateness, and an incomplete report counts as a failure in its own right — a missing national insurance number or an unexplained payment type is enough. In practice this is a data problem before it is a tax one: the information has to come out of your back-office system in the right shape every quarter, without anyone rebuilding it by hand.
Payroll when the headcount changes every week
Running payroll for a temp book is not the same as running one for fixed staff. Holiday entitlement accrues for workers on irregular hours and has to be tracked per assignment; for irregular-hours and part-year workers it can be rolled up into pay, provided it is calculated on the correct basis and shown separately on the payslip. Rolled-up pay that is not identified properly tends to be treated as never having been paid at all.
Auto-enrolment applies to temps like anyone else, and postponement is a timing tool rather than an exemption. Once your total pay bill passes the apprenticeship levy threshold you start paying it monthly — and for an agency acting as principal the pay bill includes the temps, which is one more reason the principal or agent question matters more than it looks.
Related pages you may find useful:
Frequently asked
Do I charge VAT on the whole invoice or just my margin?+
It depends on whether you supply the worker or introduce them. If the worker is under your contract and you pay them, you are the principal and VAT applies to the full charge including the wage element. If the client engages the worker directly and you take a fee for the introduction, you are the agent and VAT applies only to the fee. The contracts decide it, not what the desk is called internally.
Am I the fee-payer under the off-payroll rules?+
Usually yes, if you are the agency paying the worker’s own company and the end client is medium or large. The fee-payer is the party closest to that company in the chain, and it is the fee-payer that operates PAYE on the deemed payment using the client’s status determination. If you sit further up the chain you can still inherit the liability where a party below you fails to meet its obligations.
What changed for umbrella company workers?+
Responsibility for accounting for PAYE on workers engaged through umbrella companies now sits with the agency supplying the worker, or with the end client where there is no agency. The umbrella can still run the payroll, but unpaid PAYE can be recovered from you. Which umbrellas you work with has become a risk decision, and it is worth documenting the checks you make on them.
Do I have to file the employment intermediaries report?+
If you supply workers to clients and you are not operating PAYE on their payments, yes — every quarter, one month and five days after the quarter end. It is a per-worker return, so incomplete data counts as a failure. Most agencies find the difficulty is extracting clean data from the back-office system rather than the filing itself.
Should turnover in my accounts be gross or net?+
The same principal or agent test that decides the VAT. Principal means the whole charge is turnover; agent means only the commission is. Booking gross while acting as agent can inflate turnover to a multiple of the real figure, which may drag you into a statutory audit, cost you small-company exemptions and distort every margin a lender looks at.
Can I use invoice finance and still have clean accounts?+
Yes, but the treatment has to follow the agreement. If the funder genuinely buys the debt and carries the risk of non-payment, the receivable leaves your balance sheet. If you keep that risk, which is more common, the debt stays and the advance is borrowing. Reporting it the wrong way round understates both your debtors and your debt.
How does holiday pay work for temps?+
Entitlement accrues with hours worked and has to be tracked per worker rather than assumed. For irregular-hours and part-year workers holiday pay can be rolled up into the hourly rate, but only if it is calculated correctly and identified separately on the payslip. Where it is not shown properly, it tends to be treated as never having been paid.
What should I be checking on the umbrellas I use?+
That they are actually operating PAYE and paying it over, that the worker’s payslip reconciles to the assignment rate, and that nothing in the arrangement resembles a disguised remuneration scheme. Since the liability can come back to you, keeping evidence of those checks is part of protecting the agency rather than paperwork for its own sake.
Do you only work with agencies in London?+
Our office is in Finchley and much of our work is across North London, but recruitment is not a local business and neither is this. We act for agencies elsewhere in the UK and work by video and shared systems where that suits better than meeting in person.
Local to you
Chartered accountants, just up the road.
We are based in Finchley and work across North London. Come in, call, or do the whole thing by email — whichever suits you.
Or call 07480 281548