Here we’ll explain the main points you need to know to enable you to get paid on time, pay the right amount of tax and manage any issues you may have with your agency.
This is the day-to-day management of your contract pipeline. If you’ve built strong foundations, as detailed in the first section of this guide, the maintenance around getting paid and securing future opportunities should become second nature and a fulfilling part of what you do.
Why you can’t be paid directly
The majority of companies will not pay contractors directly. This is because they do not want the contractor seen as either an employee or operating under the intermediaries legislation. Both of which would result in them paying the contractor via a PAYE scheme and being accountable for the correct tax and NI payments being made. This is why the vast majority of contractors operate via their own limited company or an umbrella.
If you operate a limited company, you are in direct control of how you manage the recruitment agency and you have the most tax efficient operating model if the majority of your contracts fall outside of IR35. If you operate through an umbrella, the umbrella company essentially owns the relationship with the recruitment agency as they sign the contract and pay you as an employee. Either way, the end client has greater confidence that they are not employing an individual and therefore avoids the costly and resource-heavy responsibilities of having you as a direct employee.
As a contractor, although you’ll be working for your end client, you are contracted via the agency. The agency contract will stipulate that all remuneration is subject to their terms and as such the agency pays you, not the client direct. The agency negotiates the terms of contract with the client on your behalf, they enter into a contract with the end client and you enter a contract with the agency.
This may seem to be a protracted route but it gives you added protection in terms of contract negotiations and dealings with HMRC. Dealing via an agency rather than being paid directly can provide greater evidence of your contractor status as a service company rather than an employee, for example. This, however, does not apply if you operate under an umbrella. You are an employee of the umbrella and will be taxed and paid accordingly.
Next we’ll look at the timescales – how long it takes between quitting your permanent job and getting your first pay as a contractor.