SIA ACS Payroll Compliance & Indicator 4.2.1 (2026 Update): PAYE Rules, PSC Ban & HMRC Checks Explained

For UK guarding, door supervision, close protection and keyholding contractors, Indicator 4.2.1 (“Clear and effective management of the payroll can be evidenced”) is a pass-or-fail test in the Approved Contractor Scheme. Assessors reconcile shift rosters, client invoices, HMRC Full Payment Submissions (FPS), bank payment runs, and labour supply chains. Preparing for an assessment or renewal? Visit our SIA ACS accreditation support hub or our SIA ACS consultancy page.

What changed in Indicator 4.2.1 in the July & August 2026 SIA ACS updates?

To meet SIA ACS Indicator 4.2.1, an approved contractor must comply with all UK tax, National Insurance and employment legislation for deployed personnel. Two Summer 2026 updates codified how the SIA and HMRC enforce this rule:

• 1 July 2026 — 2026 Update to the ACS Self-Assessment Workbook: Revised Indicator 4.2.1 and Indicator 2.4.1 and updated ACS Glossary definitions for Employee, Employee for tax purposes, People, Personal service company, Subcontractor, and Worker rights. See our SIA ACS Self-Assessment Workbook guide.
• 11 August 2026 — Updated SIA/HMRC Guidance on Deployed Security Operatives: Updated Learn how HMRC rules apply to the security operatives you deploy to align ACS audits with HMRC’s Employment Status Manual (ESM0500, ESM2037 and ESM2039).

The 10 mandatory achievement points under Indicator 4.2.1

Under the 2026 update to the ACS self-assessment workbook, all deployed personnel must be employees or employees for tax purposes, evidencing ten controls:

1. Legislative compliance: Payroll is managed to UK legislative standards each pay cycle.
2. Tax code accuracy: Tax codes (P45s, Starter Checklists, P6/P9 notices) are checked and applied on time.
3. PAYE and RTI operation: Staff are paid via a PAYE-compliant system operating Real Time Information (RTI).
4. Statutory rights: Everyone on PAYE receives full employee or worker rights (5.6 weeks paid leave, SSP, and workplace pension).
5. Statutory deadlines: Monthly HMRC remittances and year-end P60/P11D filings meet statutory deadlines.
6. Hours-to-wages link: Rosters link directly to wages paid with zero unlawful deductions, including via umbrellas, agencies or subcontractors.
7. On-time pay cycle: Staff are paid on time, with due diligence confirming agency or labour-provider workers are paid within agreed periods.
8. Payroll query handling: Pay queries are logged, resolved promptly, and used to improve procedures.
9. Clear staff information: Staff receive written details on pay rates, deductions and the payroll system used.
10. Personal Service Company (PSC) ban: Approved contractors cannot use operatives working through their own intermediaries (PSCs) directly or in the supply chain.

Can SIA ACS security companies use self-employed guards or Personal Service Companies (PSCs)?

When directors ask can security guards be self-employed under SIA ACS, the answer for frontline licensable deployments is no. HMRC and the SIA expect security operatives deployed on guarding, door supervision, close protection, CCTV or keyholding contracts to be employees or agency workers taxed via PAYE at source.

Why frontline security guards fail HMRC’s self-employment test

Under the August 2026 SIA/HMRC guidance, employment status depends on working arrangements in practice, not contract labels. Assessors and HMRC test five criteria from HMRC’s Employment Status Manual (ESM0500):

• Control: The contractor and client set the post, hours, uniform, patrol schedule and assignment instructions. Having the right of control establishes employment status.
• Personal service and substitution: Self-employment requires an unfettered right to send a substitute. Because any replacement guard must hold an SIA licence and pass BS 7858 security screening verified by the contractor, personal service applies.
• Financial risk: Buying an SIA licence, boots, a torch, or commuting is not commercial financial risk under HMRC rules.
• Integration: Uniformed officers logging into your patrol system work as part of your business, not on their own account.
• HMRC Agency Legislation (SDC): For agency or intermediary workers, HMRC’s agency rules (ESM2037) require PAYE and Class 1 NICs unless nobody has the right of supervision, direction or control (SDC). HMRC’s Check Employment Status for Tax (CEST) tool cannot be used to decide whether agency rules apply.

The 2026 Personal Service Company (PSC) ban explained

Point 10 of Indicator 4.2.1 prohibits paying individual security officers through their own single-person limited company (a Personal Service Company). The 2026 ACS Glossary defines a PSC as a managed service company (HMRC Spotlight 67) used to reduce tax liability. Deploying even one frontline operative via a PSC—directly or via a supplier—triggers an Indicator 4.2.1 failure.

How do the 2026 SIA ACS PAYE rules apply to shareholder-directors and office holders?

The 1 July 2026 ACS workbook update sets out four scenarios for how SIA ACS PAYE requirements apply to statutory directors who hold an SIA licence or cover shifts.

Under the Companies Act 2006, all directors (including shareholder-directors) are office holders for tax and NIC purposes. Payments for office-holder duties and frontline licensable work are subject to PAYE and Class 1 NICs; only genuine shareholder dividends are exempt:

1. Non-frontline shareholder-director taking ONLY dividends: Performs no frontline licensable work and is paid solely in dividends; PAYE and NICs do not apply.
2. Director working through their own PSC performing frontline licensable work: Undertakes frontline shifts and takes salary plus dividends via an intermediary company; not exempt from PAYE/NIC for frontline work and must be on the ACS firm’s PAYE payroll. Operating via a PSC is prohibited.
3. Non-shareholder director (office holder only) performing frontline licensable work: Holds no shares and works frontline shifts; PAYE and Class 1 NICs apply to both director duties and frontline work as an employee.
4. Shareholder-director paid both director remuneration and dividends: Remuneration for the directorship and any frontline shifts is subject to PAYE and NICs; only shareholder dividends are exempt.

Which uniform, SIA licence and vetting deductions breach National Minimum Wage rules?

Contractors also fail Indicator 4.2.1 Point 6 when wage deductions pull pay below the statutory National Minimum Wage (NMW) / National Living Wage. Under the 2026 ACS Workbook, deductions or unreimbursed payments for job-related items reduce NMW pay: “It makes no difference whether the employee has agreed to the deduction. In any event pay after these deductions should/must not fall below national minimum wage.”

Deductions that reduce National Minimum Wage pay

• Uniform hire, deposits, or workwear: Charging a uniform deposit or requiring guards to buy specific trousers, shirts or boots without reimbursement reduces NMW pay pound-for-pound.
• SIA licence fee or training deductions: Deducting SIA licence or training costs cannot reduce remaining pay below NMW in that pay period.
• BS 7858 vetting or admin fees: Deducting BS 7858 screening or onboarding fees from wages breaches NMW if pay falls below the statutory rate.
• Tools, equipment and inter-site travel: Unreimbursed travel between sites during a shift, radio earpieces, or body-worn cameras.
• Employer benefit deductions: Charges for medical insurance, loss-of-earnings cover or life assurance.

Where an officer earns enough headroom above NLW for a deduction to be lawful, you must hold a signed deduction agreement and show an itemised breakdown on the payslip.

Indicator 4.2.1 vs Indicator 2.4.1: how do subcontractor and BS 10119:2026 labour checks work?

The 1 July 2026 workbook update links Indicator 4.2.1 (Payroll Management) to Indicator 2.4.1 (Subcontractors) and Indicator 3.1.1 (Purchasing):

• Subcontracting a security service (Indicator 2.4.1): A subcontractor delivers the customer contract on your behalf and supervises its own staff. You can only subcontract regulated services to another SIA Approved Contractor (unless approved under the SIA’s exceptional circumstances policy with customer agreement), and subcontractors cannot subcontract further to non-ACS firms without SIA and customer approval.
• Buying in temporary security labour (Indicator 4.2.1 + BS 10119:2026): Where an agency supplies temporary operatives whom you direct and supervise (“subcontracted labour”), Indicator 4.2.1 states that “All of the requirements that apply to employees, also apply to those sourced from other organisations”—requiring periodic supply-chain payroll audits. Under HMRC agency rules (ESM2039), the contractor dealing with the end client is liable for PAYE/NIC unless accounted for down the chain.
• BS 10119:2026 certification as supply-chain proof: Published on 30 June 2026 to replace COP 119 / NCP 119 (with NSI withdrawing NCP 119 on 30 June 2027 and Amtivo withdrawing COP 119 on 30 September 2027), BS 10119:2026 audits security labour providers on PAYE payroll, right-to-work and BS 7858 screening. See our BS 10119:2026 guide, BS 10119 consultancy, and COP 119 consultancy pages.

What payroll evidence do SIA ACS assessors sample on audit day?

On audit day, your assessor samples deployed officers from live rosters and traces them across HR, BS 7858, scheduling, payroll, HMRC RTI and bank records, alongside staff, customer and supplier interviews.

To see how payroll compliance fits into overall scheme costs—including the 1 June 2026 SIA annual registration fee rise from £15 to £25 per licensable officer—read our guides on whether SIA ACS is worth it and how to get SIA ACS approval.

8-point pre-assessment payroll compliance checklist

• 1. Reconcile deployed rosters against HMRC FPS headcount: Match 100% of operatives deployed in the past 3 months to your PAYE FPS or an audited labour supplier file.
• 2. Purge your purchase ledger of PSCs and sole traders: Move any individual guards or single-person Ltd companies onto direct PAYE contracts before assessment.
• 3. Audit statutory directors against the 4 SIA scenarios: Confirm any director who covers frontline shifts or draws director pay is taxed via PAYE and Class 1 NICs.
• 4. Benchmark payslip deductions against NMW: Cease uniform, training or vetting deductions where the charge reduces pay below NMW in that pay period.
• 5. Verify 5.6-week statutory holiday accrual and pay: Ensure full-time, part-time and irregular-hours guards accrue and take paid statutory holiday.
• 6. Separate Indicator 2.4.1 subcontractors from BS 10119 labour suppliers: Verify ACS status for service subcontractors, and conduct PAYE/RTI sampling (BS 10119:2026) for labour suppliers.
• 7. Maintain a Payroll Query & Corrective Action Log: Record every wage query, resolution date, and process improvement for Indicator 4.2.1 Point 8.
• 8. Assemble 5 end-to-end officer audit packs: Pre-check five random officers with their contract, BS 7858 file (including independent checks against fake references and SIA prosecution risks), 3 months of timesheets, payslips, FPS lines and BACS proof.

Frequently asked questions

Can an SIA ACS company pay security guards as self-employed sole traders?

No. Under SIA ACS Indicator 4.2.1 and SIA/HMRC guidance updated in July and August 2026, all deployed security operatives must be employees or employees for tax purposes paid via PAYE with Class 1 National Insurance deducted at source.

What is Indicator 4.2.1 in the 2026 SIA ACS Self-Assessment Workbook?

Indicator 4.2.1 (“Clear and effective management of the payroll can be evidenced”) is the mandatory payroll criterion in Section 4 of the SIA ACS Workbook. Updated on 1 July 2026, it requires PAYE, timely HMRC RTI filings, full employee or worker rights, zero deductions below NMW, and a ban on Personal Service Companies (PSCs).

Can an SIA ACS contractor use operatives who bill through a Personal Service Company (PSC)?

No. Point 10 of Indicator 4.2.1 in the 1 July 2026 ACS Workbook prohibits deploying operatives working through their own intermediaries (PSCs), whether engaged directly or via a labour provider.

Do company directors of an SIA ACS security firm have to be on PAYE?

Under the Companies Act 2006 and the 1 July 2026 SIA ACS workbook rules, all directors are office holders for tax and NIC purposes. A non-frontline shareholder-director paid solely in shareholder dividends is exempt on those dividends, whereas pay for director duties or frontline licensable shifts must go through PAYE and Class 1 NICs.

Can we deduct uniform hire, SIA licence fees or BS 7858 vetting costs from a guard’s wages?

Only if agreed in writing in the employment contract beforehand, itemised on the payslip, and the deduction does not reduce pay below the National Minimum Wage in that pay period. Deductions for uniforms, tools, training or vetting reduce NMW pay even if the employee agreed in writing.

How does BS 10119:2026 affect payroll checks when using security labour providers?

When buying in temporary security officers, Indicator 4.2.1 requires supply-chain due diligence and sampling to prove those officers are paid via PAYE with full worker rights and no PSCs. BS 10119:2026 (which replaced COP 119 on 30 June 2026) audits security labour providers on PAYE compliance, right-to-work and BS 7858 vetting.

Sources: SIA: 2026 ACS workbook update (1 July 2026); SIA: ACS self-assessment workbook; SIA & HMRC: Deployed security operatives (11 August 2026); HMRC: Spotlight 67; HMRC: Calculate the minimum wage; HMRC: CEST; Companies Act 2006; NSI: BS 10119:2026. Last checked: October 2026.