HMRC ESM: OP21 debt transfer provisions

Published: 21 September 2020

ESM10031 – Off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: recovery from other persons – how it will be applied

HMRC have updated their guidance on how the recovery of a debt from other ‘relevant persons’ will be applied.

Where HMRC cannot recover a debt they may decide to recover the debt from a ‘relevant’ person. This may also happen where HMRC has attempted to recover a deemed employer PAYE debt and is satisfied that there is no realistic prospect of recovering the tax, NICs and apprenticeship levy due.

‘Relevant persons’ are:

  • Agency 1 – the first agency in the chain (the agency the client contracts with and the second highest person in the contractual chain – referred to as ‘agency 1’), and
  • The client (the highest person in the contractual chain).

The provisions do not allow for the recovery from directors or officers of these relevant persons.

HMRC would look to recover the liability from relevant persons in this order:

  • agency 1, if agency 1:
    • exists,
    • is a qualifying person, and
    • is not the deemed employer.
  • the client, if:
    • agency 1 is the deemed employer,
    • agency 1 is not a qualifying person, or
    • there is no realistic prospect of recovery from agency 1.

Recovery Notice

HMRC’s guidance covers the conditions for recovery of the deemed employer PAYE debt, with examples. HMRC cannot recover debt from a relevant person unless a recovery notice is issued to that person within the relevant period. A separate recovery notice must be issued to the client within the relevant period if HMRC has attempted, and has been unable, to recover the PAYE debt from Agency 1.


A person in receipt of a recovery notice will have certain rights of appeal. An appeal against a recovery notice must be made within 30 days, beginning with the day the recovery notice is given, specifying the grounds of appeal.

A person cannot, however, appeal the amounts listed in a recovery notice if it has already been decided in an appeal that the debt is a relevant debt payable by the deemed employer. For example, if the deemed employer appealed the debt and this appeal is final, the client or agency 1 cannot appeal again in relation to whether there is an underlying debt.

Genuine Business Failure

If the failure to account for tax and NICs by the person who should have initially paid it is as the result of a genuine business failure, HMRC will not seek to recover from Agency 1 or the client.