PAYE Employer's NI cost?

Hi all,

I've been self employed since I arrived in the UK in 2007.  In 2013 I signed up with an agency that gets me jobs, and due to a recent change in their reporting requirements they've asked me to switch from self employed to PAYE on their payroll so they can confirm to the government that I'm not avoiding tax.

The thing that worries me is the agency also says "Going through Payroll means there is a 13.8% Employers NI cost" which they are passing along to me.  Can they do this? Based on what I've Google'd, I think they can if I agree to it, but I wanted to double-check and see if anyone here knows for sure.

Thanks for any advice.

I don't really know what I'm talking about but it seems strange. What exactly is your relationship with the agency? If you are am employee they should pay the 13.8% NI and you will pay Class 1. If they are just providing you will a way to get jobs and doing your payroll wouldn't they be a cost of your self employment and you presumably just pay them a fee and pay Class 2 NI.

If they are just providing you will a way to get jobs and doing your payroll wouldn't they be a cost of your self employment and you presumably just pay them a fee and pay Class 2 NI.

That's essentially the situation currently, but there's new legislation that, according to the agency:

As you may or may not know the government have been looking at the self-employment model in the UK in order to establish how best to recover taxes that they feel have not been forthcoming due to the rising level of Self Employment. In an attempt to clamp down on “false self-employment” they have introduced the Intermediary Legislation (or the Onshore/Offshore Intermediary’s Legislation).

As a result of this legislation the onus is now on the Agency to ensure that all workers that they supply are correctly accounting for their taxes, and that any workers who are working under the ‘Direction, Supervision or Control’ of the end client are treated as an employee for Tax and NI purposes.

They say the way they're going to meet the requirement is to take me on their payroll/PAYE system, but they're also going to charge me the 13.8% for their NI contribution.  Seems fishy to me, but I've never been an employee in the UK so I don't know.

I'd leave the agency.

I'm giving it serious thought.  The only issue is I have one client through them who represents about 30% of the work I'm getting, so I need to make sure I don't do anything hastily.

It really sounds as if they are your employer....so they should be paying the NI and giving you holiday and sick pay etc.

The way the agency is getting around the NI thing is they're taking it out of what they get from the client before passing the rest on to me.

Say the client is paying the agency £300/day for providing someone to work.  The agency is taking their fee from the £300, and also taking their NI contribution from the £300, and giving me the rest as my compensation.

If I tell the agency I want the NI contributions to be covered, they'll increase the amount they charge the client, who might pick someone else from the agency who is cheaper because they've agreed to the lower rate.

I don't know how they're handling holiday & sick pay.  I'm probably not going to be with them much longer, anyway.

You've just discovered the economics of self-employment vs employment. The overhead is usually lower if you are truly self employed. If you stay with your "employer" and can keep your hourly rate the same and get sick and vacation pay as well as a retirement plan you might be better off. If your agency is going to become an employer and pay NI they surely also have to comply with the rest of UK employment law

Sounds like you're working for an umbrella company. You'll be an employee of theirs, so they pay tax and NI just like any other PAYE employed job. The company will take an amount per pay period as their fee, but also holiday pay, which comes back to you. You pay both employer's and employees NI, as they are really just a service provider and make no revenue from your services save their fee. As you move from contract to contract, they remain your employer and simply receive the agency fee rate.