Working in the UK
As a temporary worker in the UK and contracting through a recruitment firm there are a number of ways that you can supply your services. As a result your net earnings, for the same job and number of hours worked, can vary considerably.
Under current legislation UK recruitment firms cannot pay self-employed contractors gross. You essentially have three options:
We will look at these options in a little more detail and will give you an indication of the net take home pay of a single person on a 543L Tax Code earning a gross £700 for a 35 hour working week.
| Agency Payroll (PAYE) | This is the most straightforward way for a contractor to get paid
though in most cases the hourly rate you are paid will be lower than if you were offering your services
through one of the other options. This differential can typically be between 10% and 13%. You become an employee of the recruitment firm and as such you are entitled to all the normal employee benefits provided under UK legislation. You will also pay Income Tax and National Insurance Contributions (NIC) on your total gross earnings. Estimated weekly take home pay would be £515. |
| Umbrella Company | While this is basically a PAYE option, temporary workers are allowed
to claim the full amount of most business expenses prior to the tax being calculated. For example,
assuming you have £100 worth of authorised expenses then your taxable income will be reduced by £100. In addition to this, agencies normally increase the hourly rate slightly (the Agency Uplift). Fees for this service vary by service provider, but i4 charge just 5% of your timesheet invoice with a maximum of £15 per week worked and includes Professional Indemnity insurance cover of £2,000,000. This is a fully compliant limited company option for individuals working within IR35 legislation. Assuming £100 weekly expenses and an Agency Uplift of 12.8%, the estimated weekly take home pay would be £545. |
| Own Limited Company | If you are in business in your own right, working outside of IR35, and are prepared to
accept the responsibilities associated with being the shareholder and director of your own limited company then this
may very well be a viable option. Directors will normally determine their own salary level on which PAYE and NI are based, and take the balance of their income as dividends, after payment of Corporation Tax. If you do not wish to carry out the day to day administration of your Company, such as invoicing, payroll, tax & NI calculation, expense processing, the associated accounting and statutory returns submissions then you can outsource some or all of this work to an accountancy firm. If you go for this option you should seek our professional advice before you commence. Assuming £100 weekly expenses and an Agency Uplift of 12.8%, the estimated weekly take home pay would be £616. |