The government introduced significant changes in the 2007 budget to the way in which self-employed contractors could be paid. These changes have led to a growth in companies offering umbrella company payments. However, a group of specialist companies still support the far more tax effective Personal Trading Companies (PTC).
Oriel supports self-employed individuals in the setting up of their own PTC, dealing with the administration and statutory reporting of the PTC under the direction of a recruitment agency. For more information about any of our contractor solutions call our Contractors team on 0845 226 1843 or email them.
Individual PTC benefits
Being paid through your own company as a self-employed worker gives you tax benefits available to all entrepreneurs. You’ll have the flexibility to take your income as a combination of fees and dividends, thereby reducing the overall taxation on your income. In addition, you’ll be able to offset your business expenses on a weekly basis, maximising your cash flow and take- home pay.
To operate a PTC you need to become the sole director of the limited company so that you are in control. We can assist you every step of the way, and on your instruction are able to take care of all the accounting and business administration involved in running a company. It's an easy, hassle-free way of working through your own limited company, whilst you retain control the entire time.
Once a PTC is formed it is difficult to dissolve the company; therefore this method of working is designed as a long-term solution. However, it will not restrict you in any way, and you are still free to change agencies, etc. For this reason PTCs are not suitable as a short-term solution - eg. if you are just working on a self-employed basis because you’re between jobs (the Oriel Umbrella Company is a better option for short-term assignments).
The PTC process
Our registration process for Personal Trading Company contractors working through agencies is a simple one. Just email our Contractors team to start the registration process.
We also offer a quick self-employment test (OSET) that helps you check your employment status. It is essential that you are self-employed to form a PTC.
For each week that you work we collect your approved timesheet, and pay rates direct from your agency. We process your payment according to your instructions (in terms of your desired split in income between your director’s fee and dividend), making payment direct to your bank account on the Friday following your working week. For example, for a timesheet that ends Friday 5th, the payment will be made on Friday 12th. You will be sent a pay advice each time we process a payment. To use a PTC you must be self-employed; however, within the PTC you will be paid as a director employee, so all your PAYE and NI liabilities will be handled by the PTC.
Throughout the year we will manage your PTC in accordance with your instructions and provide financial accounts for your approval. At the end of the tax year our tax specialists will advise you on your self assessment - this is all part of the service provided you have been with us for more than 3 months and that your tax affairs are not complex.
PTC director’s responsibilities
One of the things you need to consider is that to trade through a PTC you will need to be the sole director of your PTC. This is necessary as one of the requirements of the current legislation is that you have to be in control of your PTC, and this is clearly the case if you are the only director. So what does being a director of a limited company require?
The company director is responsible for the running of his/her company. This includes accounting, taxation and annual reporting requirements, together with ensuring the company has the right insurances and working practices to meet current working standards. This may sound difficult to achieve, but if you instruct us we can prepare your company accounts for your approval as well as advise you on insurances and working practices. So every step of the way you can rely on a team of experts.
About allowable expenses
We also provide guidance on allowable business expenses, which you can claim through your PTC. Plus, our specialist tax team will help you complete your tax return.
PTC insurances
Every PTC is required by law to have public liability cover as well as employer’s liability cover whilst you are working. We have negotiated competitive rates with providers, enabling us to offer your PTC this insurance cover within the UK; in addition, we’ve included a personal accident policy to cover you whilst you’re working. These insurance covers cost £4 for every week that you are working.
The main limits of the cover are:
Employer’s Liability: £10,000,000
Public Liability: £2,000,000
Products Liability: £2,000,000
Personal Accident: £200 per week for up to 52 weeks if an accident at work prevents you from working
(there is a 2 week deferment period)
Loss of limbs or eye or total hearing or death whilst working: £50,000
Eligibility to work in the UK
All subcontractors must be able to verify their eligibility to work in the UK. Oriel Associates has adopted the 2004 legislation relating to the prevention of illegal working in the UK. Under Section 8 of the Asylum & Immigration Act 1996 and Race Relations Act 1976, proof of identification must be obtained for each individual. Therefore all registrations must be accompanied by a passport (we recommend you send this by registered post, which we will return by registered post).
If you are unable to provide a passport, please contact our payroll department on 0845 226 1843 to discuss which alternative documentation is suitable as proof of eligibility to work in the UK.
FAQs
What is a Personal Service Company or Personal Trading Company (PTC)?
A PTC is a single member company that an individual uses for his/her trade; the individual needs to be the director of the company so that he can control the company which he owns.
What are Umbrella Companies?
Umbrella Companies are set up to pay individuals under PAYE rules but have the advantage over standard PAYE payments as they allow the offset of business expenses on a weekly basis. This can be an advantage to certain individuals if they have high business expenses. Find out more about our Umbrella solutions by clicking here.
What are the advantages of a PTC?
A PTC can be used to pay the candidate, who is also the director, a director’s fee and a dividend as his remuneration. This has the advantage of reducing the National Insurance and PAYE burden on the candidate. The candidate can also offset business expenses against income through his company. There can also be VAT benefits through the “flat rate” scheme.
The net tax advantage to a candidate is approximately 9% of gross income.
Who can use a PTC?
To benefit from the tax advantages of a PTC the candidate must be self employed. The candidate should pass the Oriel Self Employment Test (OSET) and be registered as self employed with HMRC. The rules on self employment status (often referred to as IR35) have not changed in the recent budget.
Is a PTC suitable for all types of candidates?
PTC’s will not generate the same benefits for lower paid workers as the PAYE tax rates are lower for lower paid workers. In addition the administration charges reduce the benefit when compared to a PAYE payroll which has no administration charge. If expenses are offset this increases the benefit of a PTC. The minimum wage for PTC’s to be beneficial, assuming no expenses and a 35 hour week is £6.50. The minimum wage for PTC’s to be beneficial, assuming £40 expenses and a 35 hour week is £6.00. PTC's are not appropriate for construction workers due to the complication of registering each company for the Construction Industry Scheme (CIS) and the 20% deductions from all receipts from sales invoicing as a result of the CIS rules.
Certain professions are specifically excluded from benefiting from the use of PTC’s. The tax legislation requires that all Teachers and Lecturers are taxed as “deemed employees” even if they are supply or contract teachers. As “Deeemed Employees” they are taxed as PAYE irrespective of the nature of their work. If the teacher has high business expenses the use of an Umbrella Company will enable them to get tax relief for their business expenses which may be beneficial.
Construction Industry Scheme (CIS) workers should be registered and taxed through the CIS scheme. The taxation for CIS workers is low at 20% so there is no tax benefit in using a PTC other than allowing business expenses to be claimed on a weekly basis. Under the CIS scheme business expenses can only be claimed at the end of the year as part of the self assessment. The benefit of claiming early is therefore only the cash flow benefit. The major problem with PTC’s and the CIS scheme is that if they are trading with CIS clients (agency and end customer) they will have to register for the CIS which will mean payments to the company will suffer a 20% deduction causing cash flow problems within the PTC as the candidate will expect to get his/her wages in full.
Short Term Workers will not be suitable for PTC’s. The PTC’s are costly to set up, £150, and although there is no up front charge for set up they need to be used for a minimum of 6 months. If they are used for a shorter period Oriel will have the right to charge an early cancellation fee of £150 to recover costs and to pay for closing down the company. In the past the Composite Companies could accommodate short term workers as the set up costs were spread and agencies used the in this way. As PTC’s are one person companies and cannot be re-used they should not be recommended to short term workers.
However, PTC’s are portable and provided a candidate uses the PTC for about 26 weeks a year on a stop start basis, possibly with many agencies, this would be a perfectly reasonable way to use a PTC.
What are the administration costs of a PTC?
Each week a candidate works, they will be charged an administration fee of £26. This service is now provided by Oriel Accounting Limited who is a registered firm of Chartered Accountants and can therefore provide a full accountancy service. In addition Oriel has arranged block insurance policies that can offer Accident cover at £2 per week and Combined Liability cover at £2 per week.
