Contractor/Sub-Consultant vs. Agency Worker

**cojak** · 12 May 2020, 12:05

In this context I guess that you have been working as a Temporary Worker?

I'm sure that others will come to answer specific questions, but first have a look at the articles under this heading IR35 Legislation: Advice, Help and Information for Contractors | Contractor UK.

You will get a better understanding of what IR35 is once you have them them.

**Lance** · 12 May 2020, 12:17

the biggest problem you have is that you are looking at this from the perspective of someone who does this sort of work.
Quite often on here we get people asking how to setup a consultancy/bypass the agencies/setup a business.. And it usualy ends up the same way...... that trying to do it this way round is fraught with problems, not the least being that if yo're having to ask the simple questions about IR35 here then you're a million miles from being able to do this.

In general any 'temp' job will be inside IR35.
But that applies to the person doing the work, not the business owner. If you are a business owner for this sort of business you shouldn;t give a flying stuff about IR35 as it doesn't apply to you, and you wouldn't use LTD co contractors.

As Cojak says.. read up on what IR35 is....
but wider than that, you need to know how to start, and run a business. A business plan is a very good start... And you can test a business plan for free by asking a bank to lend the money to start the business (they likely won't lend you, not at first go, but you'll get a good insight into what the business plan needs).

Good luck....

**HopefulLee** · 12 May 2020, 13:54

Originally posted by cojak View Post

In this context I guess that you have been working as a Temporary Worker?

I'm sure that others will come to answer specific questions, but first have a look at the articles under this heading IR35 Legislation: Advice, Help and Information for Contractors | Contractor UK.

You will get a better understanding of what IR35 is once you have them them.

Yes, I've been working as a Temporary Worker and in recruitment.

Thank you for the link Cojack, I've been reading my little heart out on IR35 and have much more to traverse. I just haven't come across any answers to my specific Q's in any articles or on the HMRC site yet so hopefully a patient and wise soul will present themselves :-).

**HopefulLee** · 12 May 2020, 15:41

Originally posted by Lance View Post

the biggest problem you have is that you are looking at this from the perspective of someone who does this sort of work.
Quite often on here we get people asking how to setup a consultancy/bypass the agencies/setup a business.. And it usualy ends up the same way...... that trying to do it this way round is fraught with problems, not the least being that if yo're having to ask the simple questions about IR35 here then you're a million miles from being able to do this.

In general any 'temp' job will be inside IR35.
But that applies to the person doing the work, not the business owner. If you are a business owner for this sort of business you shouldn;t give a flying stuff about IR35 as it doesn't apply to you, and you wouldn't use LTD co contractors.

As Cojak says.. read up on what IR35 is....
but wider than that, you need to know how to start, and run a business. A business plan is a very good start... And you can test a business plan for free by asking a bank to lend the money to start the business (they likely won't lend you, not at first go, but you'll get a good insight into what the business plan needs).

Good luck....

Hi Lance,

Very sound advice. I have been working with The Prince's Trust, have an advisor and nearly completed my plan. I shall be applying for funding and ultimately getting the all-essential feedback on my plan.

I've no doubt I'm simply one of millions embarking on this quest from this starting place and ppl are tired of it. However, due to the scarcity of ppl from my field actively doing it, because it's so fraught, there are few details on how to do it successfully.
I'm too much of a nervous nelly to jump in without thorough research.

Just to clarify, my IR35 concerns are not regarding recruiting temp workers or acting as an employer.

I know that end-clients will determine my IR35 status for each contract that I'm booked on.

While I'd be providing short-term cover services, the IR35 status isn't so black and white.
HMRC's basic IR35 test deems my services indeterminable and the Crunch Contractors Website deems me outside of IR35.

I would cover my own expenses, have all necessary insurances. My company would be liable for any costs to fix any errors. My company would have a website and I'd do a portion of the work from home, using branded stationery and my own equipment.
In reality there is little to no SDC in my work, as the tasks are part of my services and don't require any. Especially after the initial booking.
There is no promise of work and I can refuse to take bookings (no MOO). I'm also free to work with other clients as I choose.
I'd have right to substitution, however the tricky bit is, some clients may want to meet the sub first. Once this is done, I could freely tag them in if required.

My Q's aren't reflective of my biz structure plan, but I simply want to know more about my contract options & their consequences.
Nobody I've had access to has yet been able to clarify. I don't know anyone who works as their own 'agency worker', as opposed to contracting/consulting via their own ltd. co.
Both instances assert that the worker is an employee of the ltd. co. as opposed to the end-client, but the contracts are different to each other.

Thank you for taking the time to respond to my newbie post and wishes of luck. :-)

**elsergiovolador** · 12 May 2020, 19:48

Originally posted by HopefulLee View Post

I would cover my own expenses, have all necessary insurances. My compan\y would be liable for any costs to fix any errors. My company would have a website and I'd do a portion of the work from home, using branded stationery and my own equipment.
In reality there is little to no SDC in my work, as the tasks are part of my services and don't require any. Especially after the initial booking.
There is no promise of of work and I can refuse to take bookings (no MOO). I'm also free to work with other clients as I choose.
I'd have right to substitution, however the tricky bit is, some clients may want to meet the sub first. Once this is done, I could freely tag them in if required.

But you need to convince your client to take the risk. There is huge liability in case there is any flaw and that if the taxman figures out the working practices drafted in the contract are different from reality.
It makes working "outside" wholly unattractive and it is just easier to draft a contract that is "inside" and not worry about that.

**NotAllThere** · 13 May 2020, 07:04

If I understand correctly, you are setting up a company providing temps to other organisations. Your ltd co will employ these temps.

1. Is it possible to use an Agency contract model myself via my ltd. co.? i.e. signing as an 'Agency Worker' with my own agency.
Yes.

3. If I am allowed to do this; am I automatically inside IR35 for the bookings that I do myself because I'm an 'Agency Worker'? (I want to be able to keep a portion of my earnings in the co. to re-invest in expenses, giving myself a relatively small salary)
If the nature of the work is such that a hypothetical contract constructed between you personally and the end client were to be one of employment, then your contract will be within IR35.

4. If I use a consultancy contract type ( e.g. IR35 Contract Templates - IR35 Resources - Qdos Contractor) for my own bookings, then a 'terms of service' to cover my temps; does the right to substitute clause still apply? Can my temp be both an 'agency worker' and a 'sub-consultant'?
If the client agrees to the RoS, then yes. And yes - neither term has a legal meaning.

5. Would I have to separately hire people as sub-consultants and others as temps? (Either way they would be paid the same)
No. See above.

You will send your temps out on site at, say, £20 an hour, and pay them salary of £10 an hour. You pay their ernic and eenic and PAYE and perhaps other expenses. What's left is your company profit. For yourself, if the contract is outside of IR35, you charge the client £20 an hour and pay yourself very little - thereby minimising NI and increasing profit. If the contract is inside IR35, then you have to pay yourself a salary such that each hour the total is your pay + ernic. You can take dividends from your company from the fees you charge for your employers.

Depending on the actual rates, it might well simply not be worth your while avoiding IR35.

You can't, so far as I can see, operate your business model through a brolly.

**elsergiovolador** · 13 May 2020, 08:26

Originally posted by NotAllThere View Post

You can take dividends from your company from the fees you charge for your employers.

I thought the money company receives that is taxed at source wholly belongs to the worker, so there is no profit to take out as dividend. Unless you charge yourself a fee, but then you have to additionally pay CT if that makes a profit to the company.

**HopefulLee** · 13 May 2020, 08:36

Answered

Originally posted by NotAllThere View Post

If I understand correctly, you are setting up a company providing temps to other organisations. Your ltd co will employ these temps.

1. Is it possible to use an Agency contract model myself via my ltd. co.? i.e. signing as an 'Agency Worker' with my own agency.
Yes.

3. If I am allowed to do this; am I automatically inside IR35 for the bookings that I do myself because I'm an 'Agency Worker'? (I want to be able to keep a portion of my earnings in the co. to re-invest in expenses, giving myself a relatively small salary)
If the nature of the work is such that a hypothetical contract constructed between you personally and the end client were to be one of employment, then your contract will be within IR35.

4. If I use a consultancy contract type ( e.g. IR35 Contract Templates - IR35 Resources - Qdos Contractor) for my own bookings, then a 'terms of service' to cover my temps; does the right to substitute clause still apply? Can my temp be both an 'agency worker' and a 'sub-consultant'?
If the client agrees to the RoS, then yes. And yes - neither term has a legal meaning.

Beautiful - Thank you!
Yes, that is what I meant.

As to Q's 4 and 5, your answer helped. I did also find that a sub can be absolutely anyone qualified, as long as my ltd. co. pays them for the work. Explained in the link below.

Right of Substitution - IR35 Guides - Qdos Contractor

In regards to operating via an umbrella, I was thinking that I could do this for my own contract bookings that are inside IR35.
I would then, separately, run a ltd. co./Agency for my temps. I couldn't have my own employees while operating under an Umbrella co. if that's what you meant?
And yes, I'd have to have a number of temps operating for it to be financially beneficial.

I could also do as you suggested; Run ALL my own contracts via my ltd. co. paying NIC's and PAYE on my contracts within IR35 and less on contracts outside IR35.
I worry that may set a bad precedent for any HMRC investigation though.
As you say, the risk may not be worth it.

It doesn't make sense to me to resign oneself entirely to being inside IR35, when I know the reality is something different.

Thank you, again!

**HopefulLee** · 13 May 2020, 08:45

Originally posted by elsergiovolador View Post

But you need to convince your client to take the risk. There is huge liability in case there is any flaw and that if the taxman figures out the working practices drafted in the contract are different from reality.
It makes working "outside" wholly unattractive and it is just easier to draft a contract that is "inside" and not worry about that.

Indeed.

Some of my prospective clients are exempt 'small companies' and subsidiaries. Therefore the risk there lies entirely with my ltd. co.

I've done some market research for my biz plan. Some clients of a larger size, I've worked with in the past, consider me outside IR35.
Others are unsure, therefore would err on the side of caution, deeming me inside IR35.

Contractor/Sub-Consultant vs. Agency Worker