As we say becoming the employee of an umbrella company is not the only possible option for contractors. For example you can set up and run your own limited company but this still involves all the time consuming paperwork and cost implications that have led to many people choosing umbrellas in the first place.

But what should be clear from both of the above examples is that it is effectively a two part process.

• The first part is the contract between the agency and the limited company for the provision of the services and this need not vary as the agency is contracting only with the limited company itself.
• The second part then is how the limited company meets its contractual obligations to the agency and this can be with employees in an umbrella scenario, or via the owner/directors in a personal service company or with sub-contractor sole traders or in fact with a mix of any of the above.

This is the simplest form of self employment and involves very few formalities.

• You advise Her Majesties Revenue & Customs (HMRC) that you are self employed for tax and National Insurance contributions
• You control your own little business and are paid the full value of the invoices you present to the companies you work for (there are slightly different rules for construction highlighted below).
• You are personally responsible for any debts that you incur but on the other hand the profits of the business are yours and you are taxed after the end of each financial year on the total income of your business minus the allowable business costs incurred over the year.

Yes it can if your contract does not fit within the legal definition of an employee/employer relationship. The determination of employment status could fill many pages on its own, HMRC publish their own guidance which is available at; HMRC Employment Status.

You may also be able to obtain guidance from the companies offering these services, there may be slight differences of emphasis but the basic advise should be the same.

It often crucially revolves around whether, or to what extent,

• you are controlled in how you perform your services
• whether you have to do the work yourself and
• whether you are under any obligation to provide your services to one company over and above any others.

If you are considering self employment you should be genuinely able to answer no to all of the above.

In the construction industry different rules apply. It is worth noting that the definition of construction for the purposes of the Construction Industry Scheme (CIS) as it is known is far wider than what would often be defined as a "construction desk" in a recruitment agency, these rules often apply to work within

• Building Services
• Engineering
• And sometimes other recruitment divisions as well.

Where the work falls within CIS the sole trader as a subcontractor is subject to a deduction from the amount invoiced which is paid to HMRC. The current standard rate of deduction is 20%. The higher rate of deduction is 30% and is applicable until proper registration has been completed and in some cases where registration has been "deactivated". In both these situations and for all other enquiries there is a HMRC self employed helpline 0845 915 4515.

PayCo are one of the leading CIS companies for contractors and this brief insight is courtesy of PayCo Managing Director Steve Thomas.