Supply teaching using a limited company

Many supply teachers rely on a recruitment agency to provide them with a steady stream of work. It’s a logical approach as agencies are often the first port of call for schools seeking both short- and long-term supply teachers, and many recruitment firms specialise within the education sector to meet this need. However, many teachers may also want to consider supply teaching using a limited company.

The advantages of agencies

Agencies remove much of the stress of finding your own income opportunities and will handle HMRC tax payments and deductions on your behalf through the Pay As You Earn system (PAYE).

Some agencies will act as your employer, granting you a suite of employment rights and benefits, such as holiday pay and a workplace pension. However, most teachers working through agencies are classed as ‘agency workers’, affording them only the most basic employment rights, and granting no additional benefits.

Many supply teachers, especially those working part-time, will reach a stage in their career when an agency’s service becomes redundant. If you have forged good relationships with schools in your local area and have little interest in expanding your scope any further, your agency isn’t providing you with much benefit.

Schools may even prefer doing business directly with you as they can avoid the hefty recruitment fees incurred by many agencies, which are typically billed at around 20% of your earnings.

Teachers who choose to go it alone will become self-employed, operating as either a sole trader or a limited company.

Why choose to do supply teaching as a limited company?

Creating your own limited company does take a lot of work to setup and manage. However, it usually maximises your take home pay by minimising your income tax and National Insurance payments.

By splitting your pay into both a salary and dividends before it is subject to income tax, personal limited companies provide legitimate opportunities to reduce your tax bill, if you’re prepared to take on the work to manage them. You can find out more about limited companies and the benefits they could bring to you here.

How to transition to a limited company

If you think creating a limited company is right for you, there are a few important factors to take into account before committing to the transition.

If you already receive regular work with different schools through an agency, you can’t simply go into business for yourself and take those positions as your own. Remember that the schools aren’t paying you to do your job, they’re paying your agency.

Most agencies will secure this position with ‘restrictive covenants’ that you agreed to uphold when you signed your contract with them. Restrictive covenants fall into distinct categories and protect employers from conflicting interests with their employees.

The most applicable covenants to supply teachers are non-solicitation covenants and non-dealing covenants. These restrictions prevent teachers from contacting, receiving job offers, or working with agency clients after you choose to leave your agency behind.

These restrictions are not permanent, but recruitment agencies are free to define their own time windows until you can be declared as a ‘free agent’. Legally, this period lasts as long as is ‘reasonably necessary’ to protect the interests of the agency.

There is some room for disagreement if these sanctions are excessive, but it will usually involve a legal dispute to some degree. The costs involved to get your ‘day in court’ will rarely be worth the benefit, so be careful to thoroughly check the fine print of your agency contract before deciding to part ways.

Usually, you will be able to form your own limited company and seek your own clients in addition to agency employment, so long as you are not directly competing with any of their interests.

Through this method, it is entirely possible to gradually shift into self-employment as you build up a bank of your own clients, spending more time working for yourself, and less time working for your agency. If successful, you can simply end your agency contract and continue working without any need for a cooldown period.

Important considerations

One of the most important considerations when deciding whether to start supply teaching as a limited company is your IR35 status.

IR35 is tax legislation designed to stop typical employees from disguising their tax status through self-employment. Unfortunately, the current system has some flaws, often subjecting legitimate businesses to surprise IR35 investigations.

Public sector employees are especially at risk and can be unduly placed under IR35 status directly by their employers, through a ‘better safe than sorry’ approach to the legislation.

If you think you will be subject to IR35, the benefits of creating a limited company are significantly reduced.

With the current state of affairs, either decision involves opening its own can of worms, so being fully informed is vital before taking any steps to changing your employment status. If you’d like to find out more about supply teaching as a limited company, click here to read our selection of guides.

Alternatively, appointing a contractor accountant can also be a good starting point. They can help you set up your limited company, as well as your business bank account, and can advise you on any legislation that will potentially affect your company.