How the UK contracting market actually works
What You'll Learn
The contractor market has five players — clients, agencies, MSPs, umbrellas, you.
The five players and their interests
End clients want work done at the lowest cost. They often outsource hiring to agencies or MSPs to avoid the complexity. They make IR35 determinations (or delegate it).
Agencies want to place you at the highest possible margin. They know what the end client will pay and try to offer you as little as possible. They don't tell you: actual day rate offered to other contractors, true margin on your role, how long assignment will last.
MSPs (Managed Services Providers) sit between end clients and agencies, managing contractor placement and billing. They add margin but also complexity — another intermediary between you and the actual client.
Umbrella companies (if you're on umbrella) act as your employer for PAYE purposes. They take a percentage (8–12% typical) and handle PAYE, tax, payslips.
You are the least informed party. You know only your own rate and (if you network) what peers have told you. You often don't know what the end client is paying or what the agency margin is.
End clients: who makes IR35 determinations
The end client determines if you're inside or outside IR35. They can be wrong, and expensive for you. Usually they outsource this to the agency or MSP for assessment.
The client cares about one thing: protecting themselves from HMRC. If they misclassify you as outside IR35 and HMRC later disagrees, the client faces penalties. So many clients err on the side of inside IR35.
Agencies: what they want and what they don't tell you
Agencies want to fill seats at the highest possible margin. Margin is their profit. A typical agency margin: 15–25% of the day rate.
What they don't tell you: the actual rate the end client offered, how long the contract is expected to last, what margin they're taking, what other contractors are being offered for the same seat.
Most contractor grievances stem from this information asymmetry. You find out later that the end client was willing to pay 20% more, and the agency kept the difference.
MSPs: the layer that adds complexity
MSPs are intermediaries between end clients and agencies. The end client says "fill 50 contractor seats this year," the MSP says "I know 5 agencies that can help," each agency supplies contractors.
MSPs add margin but also reduce your visibility to the actual client. You now have: end client → MSP → agency → you. Four parties between you and the decision-maker.
Who has what information
End clients: full picture of market rate, budget, alternatives.
Agencies: know what they're offering multiple contractors, what margins are viable.
Contractors: know only their own rate and (if they talk) what peers have been offered.
Information asymmetry heavily favors the client. This is why talking to other contractors in your network is valuable — it breaks the information gap.
Know your place in the chain
Information asymmetry is structural. Navigate it smarter.
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