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Understanding your Agency Working Options



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Call us today on 0800 230 0213 , or make an enquiry for free and friendly advice.

If you want to understand your working options when working through a recruitment agency, you are in the right place.

Our infographic below is a good place to start, compare Limited Company, Umbrella Company and Agency PAYE working options and possible take home pay.

 Agency Working Options

 

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Understanding your working options when working through an Agency

Limited Company, Umbrella Company or Agency/PAYE; which option is right for you?

  • Around 1 in 7 workers in the UK are currently self-employed
  • There are over 1.4 million contractors, freelancers and self-employed professionals in the UK.

Take-home pay

£30,000 income

Limited - £26,472

Umbrella - £23,734

Agency/PAYE - £20,393

 

£50,000 income

Limited - £43,080

Umbrella - £35,685

Agency/PAYE - £31,954

 

£70,000 income

Limited - £56,106

Umbrella - £46,261

Agency/PAYE - £41,943

 

Things to Consider

  • Length of Time: How long do you plan to work as a self-employed professional?
  • Administration: How much time do you have to invest into running your business?
  • Turnover and Profit: How much do you expect your business to make?
  • Client Expectations: Do your customers prefer to work with a certain type of business? 

Limited Company

Setting up a Limited Company involves incorporating your company, setting up a business bank account, arranging insurance cover, and becoming a director of your company.

Pros

  • Credibility - Some clients will view a Limited Company in a more positive light. Some larger companies may even refuse to transact with sole traders.
  • Higher take-home pay - Because of tax efficiency you will take home more pay than being PAYE, Umbrella or a Sole Trader.
  • Lower personal financial risk - Because of its structure and separation between you and the company, you are protected* from the threat of personal financial losses if things go wrong.
  • Tax planning - Various tax planning opportunities exist which can be tailored to your circumstances where applicable, to deliver significant tax savings.

Cons

  • Administration: There are greater statutory obligations, such as submission of Annual Accounts, Corporation Tax Returns and VAT Returns.
  • Costs: Because of the range of statutory obligations, there are usually higher accountancy costs and, if you don't get things right, higher financial penalties.
  • Directorship: Directors of limited companies hold obligations under the Companies Act 2006.
  • IR35: You must show that you are genuinely self-employed and not just a disguised employee. This will typically require an IR35-friendly contract with working practices to match.

Umbrella company

You can choose to become an employee of an Umbrella Company, allowing you to choose the assignments that you want to work on, whilst being paid through an Umbrella Company that processes your payroll.

Pros

  • Ease of setup & use: Quick & easy set up and running in minutes. Simply submit your timesheets and expenses. Holiday pay is withheld and paid whilst you are off. Insurance is included.
  • Low risk: All tax and NI is automatically deducted so no need to worry about Tax Returns or budgetary spend.
  • Length of assignment: Suitable for any period of working; short or long term contracts. A good choice if you are working intermittently.
  • Expenses: The ability to claim back certain expenses such as travel, subsistence, tools and equipment etc.

Cons

  • Lower earning potential: You may be able to claim tax relief on certain expenses but it is not as tax efficient as a Limited Company.
  • Control: No control over the processing of payments etc and there can be a delay in payment as it has to go through a third party before you get it.
  • Identity: You are unable to create a brand identity to build your reputation in the marketplace.

Agency/PAYE

Working with a recruitment agency means that you will have a contract with them. Your salary will be processed by their own payroll as PAYE.

Pros

  • Simpler payroll model: There is no administration; you just need to complete a timesheet.
  • Ease of use: All tax and NI is automatically deducted so no need to worry about Tax Returns or budgetary spend.

Cons

  • Higher tax: Expenses cannot be claimed on tax relief, meaning higher tax rates are paid.
  • Lower earning potential: The hourly rate offered to agency workers is often lower, but should not impact net pay.
  • Identity: You are unable to create a brand identity to build your reputation in the marketplace.
  • No expenses: You are unable to claim tax relief on expenses.

 ^Assumptions

The calculations are based on 40 hours per week, over 52 weeks, claiming £2,600 expenses and 10,400 business miles per annum, HMRC Flat Rate VAT Scheme at 13.5%, directors fee of £149 per week. Limited, Sole Trader and Umbrella figures include the Brookson fee or margin. Agency/PAYE includes a rate reduction of 13.8% to accommodate employers NI.

*Providing you meet your statutory responsibilities as a director.

 

Sources

Brookson Choices: A simple, no-nonsense guide to self-employment.

 

To discuss your working options & arrange your FREE ways of working consultation, including a tailored take home pay illustration:

Call 0800 230 0213 and talk to one of Brookson's Specialist Advisors or fill in the form below and one of their advisors will be in touch.