Limited company contractor

The chain runs client, agency, contractor's company. The contractor is normally the sole director and shareholder, draws a salary and dividends from the company, and the company either invoices the agency or is self-billed by it. The company registers for VAT once its taxable turnover passes £90,000 in a rolling 12 months, or earlier by choice, and it usually holds its own professional indemnity and public liability insurance, often because the client's terms require it.

Before the first payment the agency needs the company's name, registration number and registered office, its VAT number if it has one, a business bank account in the company's name, current insurance with expiry dates, the contractor's Conduct Regulations position, a self-billing agreement if the agency self-bills, and for clients under the off-payroll rules, the SDS. Checking the company on the Companies House register, and that the contractor is an officer of it, takes a minute and prevents paying the wrong entity.

Here is how the money moves for a VAT-registered contractor on £550 a day. The agency's self-bill for a five-day week is £2,750 plus £550 VAT, so £3,300 is paid into the company's account. The agency invoices the client £3,300 plus £660 VAT. It reclaims the £550 as input VAT and accounts for the £660 as output VAT, so VAT passes through and the £550 difference in net amounts is the agency's margin.

The failures are mostly identity and timing. Bank details change to a personal account. The company named on the paperwork has a similar name to the contractor's but belongs to someone else. Insurance lapses halfway through a 12-month assignment. A sole trader is treated as if they were a company, although only a company can opt out of the Conduct Regulations. From 1 October 2026 the right to work scheme also reaches beyond employees, and whether it covers a particular limited company arrangement depends on the facts.

The longer answer: What is self-billing in contract recruitment?