Written for independent consultants trading through their own companies, interim and fractional executives, and boutique consultancies that work with associates.
The short version
- Check who decides status and who pays.Medium or large end client: it issues the SDS and your firm is usually the fee-payer. Small client: the associate's company decides.
- Know what an inside SDS costs you.As fee-payer you pay employer NI on the associate's fees, and it comes out of your margin. Work out what is left per day.
- Reprice before the next timesheet.Raise the client's charge or agree a new associate rate. Never deduct employer NI from the associate's agreed fee.
Associates let a boutique take on bigger work without a payroll. But every associate who works through their own company makes your firm part of the off-payroll chain, and the rules decide who carries the tax. Often that is you, out of your margin.
Who decides, and who pays
- Medium or large end client.The client issues the SDS. Your boutique, as the party paying the associate's company, is usually the fee-payer: it runs the deemed payment through its own payroll and pays employer NI out of its margin.
- Small end client.The associate's own company decides under Chapter 8.
- Work the associate does for your boutique.Delivery management or sales support makes your boutique the client, so your own size decides who makes the status call.
- An associate who is a sole trader.Outside both chapters, but now you decide employment status directly. Get it wrong and you owe PAYE and employer NI on the payments, and the associate may be a worker entitled to holiday pay and the minimum wage (Pimlico Plumbers v Smith [2018] UKSC 29).
| Associate's day rate, paid to her company | £550 |
| Employer NI you now owe as fee-payer | £79.62 |
| Margin left | £170.38 |
| Day rate charged to the client | £800 |
Worked example, as of Oct 2026: full time, five days a week. Employer NI is (5 x £550 minus the £96 weekly secondary threshold) x 15%, spread over five days. Your margin falls from £250 to £170.38 a day.
Employer NI is the fee-payer's own cost and cannot be taken from the agreed fee, so repricing is how you recover it.
What the associate agreement needs
- Substitution and control terms that match how the work is really done.
- The associate's own PI cover.
- IP assigned to your boutique as it is created, or you cannot assign it on to clients.
- Confidentiality and sub-processor data terms.
- A client non-solicit no wider in people, activity, geography and duration than your legitimate interest needs, drafted by an employment solicitor. Do not default to 12 months.
- Payment terms. Pay-when-paid is lawful in an associate agreement but must be agreed in writing.
Your first salaried consultant
Move from associates to salaried staff only when your 13-week cash view supports bench time and management cost. The first hire is usually a delivery manager or an analyst who lifts your own leverage, not a second rainmaker. The first employee paid above the secondary threshold makes the company eligible for the Employment Allowance, which then offsets your own employer NI as director too.
Pay consultants a base salary plus a bonus on collected fees or utilisation above a target, paid only on cash received, and write the bonus as either discretionary or formula-based, never both. For covenants after they leave, a 6 to 12 month non-solicit of clients the employee dealt with is the defensible core.
A boutique that places associates with clients and pays some of them without PAYE may be an employment intermediary that must report to HMRC each quarter, by the 5th of the month after each quarter ending 5 July, 5 October, 5 January and 5 April.
Asked in Greymill
Who pays: with a medium or large client, your firm is usually the fee-payer, so the employer NI comes out of your margin.
Employer NI a week (As of Oct 2026): (5 x £550 minus the £96 weekly threshold) x 15% = £398.10
Per day: £398.10 / 5 = £79.62
Your margin: £800 minus £550 minus £79.62 = £170.38 a day, down from £250
Fix it before her next timesheet: reprice your charge to the client, or agree a new rate with her.
I can work out the client day rate that gets your £250 margin back.
Ask it about your own business
Paste this into Greymill with your own figures, and Staff & HR works it through for your business.
I run a consulting business in the UK. I place associates with clients. For [client], I charge [day rate] and pay the associate [day rate] through [her own company / as a sole trader], for [days a week]. The client is [small / medium or large / public sector]. Tell me who decides status and who is fee-payer, what an inside SDS would do to my margin, and what my associate agreement must say.
More for consulting and advisory in the UK
- My day rate looks healthy, so why does the year not add up?A consultant is paid for the days they bill, not the days they are available, and fixed fees and retainers can quietly turn a good rate into a poor one.Read the lesson
- How much of the money in my consulting company is actually mine to take?In a one-person consulting company part of every invoice belongs to HMRC, and drawing the rest the wrong way can lock cash away for at least a year.Read the lesson
- Is this contract inside IR35, who decides, and what does it do to my take-home?On every engagement through your own company, the client's size, sector and UK connection decide who makes the IR35 call, and a client's SDS can be formally challenged.Read the lesson
- Can I take a success fee for finding investors, or help with a client's visa application?Introducing investors, recommending investments, dealing with HMRC for clients and advising on visas each sit behind a regulatory line, and crossing some of them without permission is an offence.Read the lesson
- The client's contract makes me liable for everything and wants to own my toolkitAdvice contracts hurt consultants in two places: an uncapped or stricter duty than the law implies, and IP clauses that hand over the methods you reuse on every job.Read the lesson
- How do I win public sector work, and stop depending on one big client?Consultancies win through referrals, a narrow niche and frameworks, and public sector work comes with its own rules on registration, conflicts, payment and IR35.Read the lesson
- Closing my consulting company: strike-off or liquidation, and the claim that arrives afterwardsClosing a consulting company the cheap way can turn retained profit into income, and stopping your PI on the same day can leave a later claim with nothing to answer it.Read the lesson
Open the interactive lesson · Every consulting and advisory lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- s.61N (Associates and subcontracted consultants)
- Pimlico Plumbers v Smith [2018] UKSC 29 (Associates and subcontracted consultants)
- CA 2006 s.1029(1) and (2)(f), s.1031(1)(c) and (2), and s.1032(1) (Hard cases: associates, staff and insurance)
- Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (Hard cases: associates, staff and insurance)
- ss.61NA and 61N (The SDS, the fee-payer and the 45-day disagreement)
- s.61Q (The SDS, the fee-payer and the 45-day disagreement)
- ESM10037 trigger events; ESM10038 conditions, included and excluded amounts (The SDS, the fee-payer and the 45-day disagreement)
- ESM10000 onwards (off-payroll chain) (The SDS, the fee-payer and the 45-day disagreement)
- s.15; Code of practice on preventing illegal working (Feb 2024) (The first employee)
- s.1 (The first employee)
- Pensions Act 2008; Employers Duties Regulations (The first employee)
- eligibility (The first employee)
- ERA 2025 and commencement regulations (The first employee)
- MPC dates (The calendar: corporation tax, payroll, VAT and off-payroll)
- payment and filing (The calendar: corporation tax, payroll, VAT and off-payroll)
- deadlines (The calendar: corporation tax, payroll, VAT and off-payroll)
- update deadlines (The calendar: corporation tax, payroll, VAT and off-payroll)