Freelance agency - PAYE unless you're a limited company.

[MitchT]

Anyone else encountered this? I was nosying at freelance graphic design opportunities and noticed that agencies who find freelance work for designers put you on their payroll unless you're working through a limited company. They also pay you a lower hourly rate so you lose out on income as well as not being able to offset your business costs. What's the rationale behind this? Why can't they just pay you as a self employed sole trader?

[Super Slo Mo]

It’s happening in my industry too (television).
Hmrc have been cracking down on sole traders working for one company, the snag is that it’s the employing company who ends up liable for the tax and NI if found to be non compliant with the rules.
They will be paying a lower rate as they have to pay employers NI which is about 12-13% off the top of my head.

[MitchT]

Super Slo Mo said:

They will be paying a lower rate as they have to pay employers NI which is about 12-13% off the top of my head.

That would make sense. The bummer is that you can't offset your costs if this is the case.

[Super Slo Mo]

MitchT said:

Super Slo Mo said:

They will be paying a lower rate as they have to pay employers NI which is about 12-13% off the top of my head.

That would make sense. The bummer is that you can't offset your costs if this is the case.

It’s a massive pain I agree. My view on costs is that if you’re PAYE you ought to be able to claim them off the agency. I doubt the agencies will agree though .

[Eric Mc]

Nothing new in this at all. Indeed, the trend for individuals to operate through their own "one man band" limited companies began 30 odd years ago because employers did not want to accept the PAYE and NI risks of hiring "sole trader" individuals who might be later reclassified by the Inland Revenue (as was) as employees.

[Countdown]

Eric Mc said:

Nothing new in this at all. Indeed, the trend for individuals to operate through their own "one man band" limited companies began 30 odd years ago because employers did not want to accept the PAYE and NI risks of hiring "sole trader" individuals who might be later reclassified by the Inland Revenue (as was) as employees.

i think it's a bit "new".

AIUI from what I can see basically Public Sector employers will not take on agency staff unless they are PAYE on the Agency's books, or at least PAYE somewhere along the line. It's something to do with HMT "Off Payroll Assurances". So it looks like Agencies are insisting people come onto their books before they contract them out to other organisations.

In relation to Agencies paying Employers NI - they include that in the charge rate to the Employer (and pension and holiday pay as well) so the "Employee" shouldnt be getting a lower gross rate.

[Eric Mc]

That's different to insisting they can't be self employed as in the true definition of self employment i.e. sole traders.

Many years ago "employers" realised they were facing massive tax risks if the hired people on self employed/sole trader arrangements. If the Inland Revenue adjudged these individuals to be employees, the employer had to find all the underpaid tax and NI.