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I work through two contractor agencies. Am I paying too much tax?

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A government contractor that works via two agencies, writes in to find out if they are paying too much tax and if they ever had to apply for Universal Credit could they do it if their agencies pay in arrears at very different times.

Q: I work on contract in government through two contractor agencies which pay me at least 4 weeks behind. If I move contract to a contract where they pay one week behind I will pay more tax as I will have 3 or 4 weeks of pay from my old employer and pay from my new employer, so double pay and extra tax, which again cannot be right.

Also if my contract finished, my agencies wouldn’t pay me up the following week, they would continue to pay each week for the next 4 weeks, meaning if I needed to go on Universal Credit, I will probably lose a month’s money as Universal credit will view it that I have received monies for an extra 4 weeks, whereas if I was paid a week behind, I wouldn’t lose money, so the two agencies will lose me about £1700 in benefits.

None of this is right in terms of how they are operating the government contract for contractors – has this not been mentioned before? I think this needs investigating, it’s bad enough all the tax we pay (I get £450 per day, so paying a lot of tax each week), but to get extra NI to pay because they hold at least 4 weeks of your pay is scandalous.

A: The short answer is that you will not pay more tax if you move from a four weeks-in-arrears to one-week in-arrears contract – if you measure the effect over a full tax year.

If you are on PAYE (either as an employee or as an inside IR35 worker via an umbrella), then you are taxed as and when you are paid. If this is monthly, then each month you are granted 1/12th of your allowances as a deduction against the gross pay.

The remaining balance is taxable and therefore is applied 1/12th of the basic rate band and if required 1/12th of the higher rate band and any remaining balance is taxed at the additional rate (45%). The same for NIC.

If your payments are not even, then some months you may get pushed into higher rate bands but the following month, if your pay is lower, you’ll drop back into the basic rate band and perhaps recoup some of the earlier paid tax.

The interaction between pay for work and whether it’s taken into account for Universal credit on a paid or due basis is beyond my knowledge I am afraid, so you will need specialist advice. In the meantime, there are some contact details below that may lead to some answers.

Furthermore, I cannot comment on Government policy. That said, be assured that if the PAYE scheme is being operated correctly you will not pay additional tax.

Eligibility for Universal Credit

You may be able to get Universal Credit if you’re on a low income or need help with your living costs. You could be working (including self-employed or part-time) or be out of work.

To claim you must:

  • live in the UK
  • be aged 18 or over (there are some exceptions if you’re 16 to 17)
  • be under State Pension age
  • have £16,000 or less in money, savings and investments

You can use a benefits calculator to check what benefits you could get.

You can contact Universal Credit:

Universal Credit helpline
Telephone: 0800 328 5644
Textphone: 0800 328 1344
Relay UK (if you cannot hear or speak on the phone): 18001 then 0800 328 5644
Video relay service for British Sign Language (BSL) users – check you can use this service
Welsh language: 0800 328 1744
Monday to Friday, 8am to 6pm
Find out about call charges

A big thank you goes out to WTT Consulting for providing this expert response

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