What are the different ways to contract?
There are number of different ways you can operate as a contractor, the three main ones are:
A PAYE contract is a relationship whereby the agency deducts tax and National Insurance from the contractor's gross pay. The contractor will also be entitled to a basic 28 days statutory holiday per annum and will accrue Holiday Pay at a rate of 12.07%. It is important to remember that this is NOT a contract of employment. It is a contract for services and you will not be an employee.
PAYE contractors will be considered “in scope” for the purposes of the Agency Workers Regulations (AWR); please see our information on the AWR.
Umbrella company contractor
An umbrella company acts as an employer to agency contractors who work under a fixed term contract assignment, usually through a recruitment agency.
Recruitment agencies issue contracts to a limited company. The umbrella company issues invoices to Matchtech and, when payment of the invoice is made, will typically pay the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as travel, meals, and accommodation.
Limited Company (Consultancy)
Any contractor who wants to work through a Limited Company but does not want to go through an umbrella company will be sent a Consultancy Contract. Under this model, the onus is on the individual contractor to ensure that they pay the appropriate tax . Usually a consultancy will claim to be outside of IR35 rules.
Are there any models that Matchtech will not work with?
The two main models that Matchtech cannot contract with are:
A sole trader is a business that is owned by one person but has not been registered as a limited company and so the owner is personally liable for any debts the business incurs and this liability is unlimited.
Matchtech are unable to work with sole traders because the Income Tax (Earnings and Pensions) Act 2003 - and previous acts - prevent 'self employment' when an agency is involved, as the obligations of the Act would mean that Matchtech would have to treat the contractor as an 'employee' and deduct PAYE and national insurance at source.
Additionally, Matchtech (or the client) could potentially be liable to pay any the tax liabilities of any contractors who defaulted on their payments to HMRC.
Matchtech’s policy on contracting with offshore and overseas limited companies has been in place since 1990 and its purpose is to ensure that Matchtech, its clients and contractors are fully compliant with UK tax legislation and protected from the risks of claims from HMRC.
Matchtech has taken advice from several sources including our legal advisors, our auditors and our governing body the REC.
Where someone is working and living in the UK then they are subject to UK jurisdiction and should be liable for UK Income Tax and National Insurance. Where a worker provides services in the UK through a limited company registered abroad then that offshore company should operate a UK PAYE scheme.
In addition, where a UK based contractor provides their services to a UK based end client via an offshore company, HMRC has special anti-avoidance provisions to protect against a loss of Income Tax, and National Insurance contributions. If the offshore company has not paid the correct amounts to HMRC in the UK, HMRC can make the end client liable for these payments. This is the end user client to whom the contractor actually provides work, as opposed to the employment business.