Self Employed

[zathras]

Probably a stupid question, but I dont know the reason.

rather than set up a limited company, why do people not register as self employed for contracting and then fill in self assesment inland revenue forms for tax returns. I heard that alot of agencys wont deal with you if you are self employed, is that the reason why people go ltd company? why dont agencys deal with self employed contractors?

thanks.

S134 ICTA 1988 requires an agency to deduct NI/Income tax when placing a worker with a third party who controls them. There is an exemption for limited companies.

see http://www.egos.co.uk/FAQ/s134.htm

This is now Chapter 7 of the Income Tax (Earnings and Pensions) Act 2003

And if you really want a tedious time here it is...

Chapter 7

Application of provisions to agency workers

Agency workers

44 Treatment of workers supplied by agencies (1) This section applies if—
(a) an individual (“the worker”) personally provides, or is under an obligation personally to provide, services (which are not excluded services) to another person (“the client”),
(b) the services are supplied by or through a third person (“the agency”) under the terms of an agency contract,
(c) the worker is subject to (or to the right of) supervision, direction or control as to the manner in which the services are provided, and
(d) remuneration receivable under or in consequence of the agency contract does not constitute employment income of the worker apart from this Chapter.
(2) If this section applies—
(a) the services which the worker provides, or is obliged to provide, to the client under the agency contract are to be treated for income tax purposes as duties of an employment held by the worker with the agency, and
(b) all remuneration receivable under or in consequence of the agency contract (including remuneration which the client pays or provides in relation to the services) is to be treated for income tax purposes as earnings from that employment.
45 Arrangements with agencies If—
(a) an individual (“the worker”), with a view to personally providing services (which are not excluded services) to another person (“the client”), enters into arrangements with a third person (“the agency”), and
(b) the arrangements are such that the services (if and when they are provided) will be treated for income tax purposes under section 44 as duties of an employment held by the worker with the agency,
any remuneration receivable under or in consequence of the arrangements is to be treated for income tax purposes as earnings from that employment.
46 Cases involving unincorporated bodies etc. (1) Section 44 also applies—
(a) if the worker personally provides, or is under an obligation to personally provide, the services in question as a partner in a firm or a member of an unincorporated body;
(b) if the agency in question is an unincorporated body of which the worker is a member.
(2) In a case within subsection (1)(a), remuneration receivable under or in consequence of the agency contract is to be treated for income tax purposes as income of the worker and not as income of the firm or body.
47 Interpretation of this Chapter (1) In this Chapter “agency contract” means a contract made between the worker and the agency under the terms of which the worker is obliged to personally provide services to the client.
(2) In this Chapter “excluded services” means—
(a) services as an actor, singer, musician or other entertainer or as a fashion, photographic or artist’s model, or
(b) services provided wholly—
(i) in the worker’s own home, or
(ii) at other premises which are neither controlled or managed by the client nor prescribed by the nature of the services.
(3) For the purposes of this Chapter “remuneration”—
(a) does not include anything that would not have constituted employment income of the worker if it had been receivable in connection with an employment apart from this Chapter, but
(b) subject to paragraph (a), includes every form of payment, gratuity, profit and benefit.

Also until Muscat it was believed that the limited company acts as a firewall to prevent employment claims.

[XLMonkey]

Can i just get this straight in my case,

A company has approached me with a contract for 6 months at 24hrs a week, so they will be paying me monthly after i log all my hours on there system. I am already self employed doing the odd thing for people can i have do this under self employment?

Thanks

Yes. It is legal. You can do it.

However, I would be surprised if your clients HR department would allow it. If they are smart, then they will know that if you don't pay your NIC, then the revenue can make them pay it for you (this applies irrespective of your IR35 status).

If you plan on contracting for a long period of time/with more than just this one client, then you are probably better off setting up your own limited company anyway.

[The Lone Gunman]

TLG in spreading the wisdom mode (again):
I assume some of you are new to this....

A long time ago in a galaxy far far away....... Sorry.

It is historical, actualy Maggies fault I think.

The first IT contractors were self-employed. The Government of the day had a panic. Due to the high fees involved they may lose tax if the freelancers didnt declare and or fled with the cash.
To counter this they introduced legislation which basically stated that; if a business used a self employed contractor then the client and the agent could be held responsible for any unpaid tax.

Thus, virtualy overnight, the contracting industry went the Ltd comapny route.
Obviously, being the switched on operators that we are, contractors realised that they could take advantage of their incorporated status by paying minimum wage and maximum divvies, but that leads to a long story.

HTH.

[Crossroads]

Can i just get this straight in my case,

A company has approached me with a contract for 6 months at 24hrs a week, so they will be paying me monthly after i log all my hours on there system. I am already self employed doing the odd thing for people can i have do this under self employment?

Thanks

Whether you are self employed or employed is not a matter of choice, but a matter of fact. What are the working arrangements? Are you really a part time employee?

Oh, and

[halfpint]

Can i just get this straight in my case,

A company has approached me with a contract for 6 months at 24hrs a week, so they will be paying me monthly after i log all my hours on there system. I am already self employed doing the odd thing for people can i have do this under self employment?

Thanks

[TheFaQQer]

An old colleague of mine contracted direct (or rather sub-contracted himself) to a number of companies as self-employed. Of course he had history with each of them, and each contract specifically indemnified the client from any tax/ni obligations.

If you go direct, then the Agencies Act does not apply, since there is no agent.

The OP was asking why agents will not deal with the self employed - they are not allowed to, and if they could, the wouldn't since they could get landed with you tax bill if you are deemed an employee.

I'm not convinced that an indemnity in the contract between self employed person and the client holds any water - if HMRC come calling, then having a clause that says "he promised me he'd pay it, it's nothing to do with us..." would probably get struck out if he was viewed as an employee who hadn't paid his tax. (IANAL)

[Dundeegeorge]

Not true (though agents woiuld tell you otherwise)

agencies act prevents them. LTD or PAYE only.

An old colleague of mine contracted direct (or rather sub-contracted himself) to a number of companies as self-employed. Of course he had history with each of them, and each contract specifically indemnified the client from any tax/ni obligations.

[westredd]

understood, thanks

[vetran]

agencies act prevents them. LTD or PAYE only.

[Sockpuppet]

Because if you don't pay the PAYE/NIC then they can become liable for them. Being a Ltd provides a legal barrier between them and you so you as Director become liable for them.

HTH.

[westredd]

Probably a stupid question, but I dont know the reason.

rather than set up a limited company, why do people not register as self employed for contracting and then fill in self assesment inland revenue forms for tax returns. I heard that alot of agencys wont deal with you if you are self employed, is that the reason why people go ltd company? why dont agencys deal with self employed contractors?

thanks.