Given a good accountant, a limited company supply teacher working through an agency who earned Pounds 16,000 a year would pay around 16 per cent of this in tax. Their PAYE counterpart would hand over about 26 per cent - Pounds 1,600 more.
Yet, despite the potential savings, few British supply teachers play the system. This, in part, is because most are employed by local authorities which are only geared to Schedule E Pay-as-you-earn methods.
Martin Benson, of Coopers and Lybrand, said: "In theory local authorities can employ supply teachers registered as limited companies. It is acceptable in terms of tax and national insurance law, provided all concerned comply with the complex tax and legal obligations."
In practice limited company supply teachers must work through agencies, most of which say they are prepared to employ such staff.
The Inland Revenue has no objection either. "It is not a problem," a spokesman said, "so long as everything is done in a correct and proper way and we get the right amount of tax."
Jeff Gibson, of the accountancy firm London Orientation, said: "There is no reason why a British supply teacher should not operate in the same way as my Australian and New Zealand clients. National insurance is the issue for a permanent resident because if you don't pay, you can't claim entitlements. But if you're a contractor earning more than Pounds 3,525 [the income tax threshold] the limited company option is worth considering."
Barry Fawcett, assistant general secretary of the National Union of Teachers, urges caution. "I can't see the advantage for people doing long-term supply work," he said. "The benefits would have to be set against pension and sick pay entitlement losses."