- What is an umbrella company?
- What is IR35?
- What is a contractor?
- How am I classified as an employee?
- Are there any tax advantages for using an umbrella company?
- How can I calculate my pay?
- What is classed as an expense?
- So what expenses can I claim for?
- What is an Undischarged Bankrupt?
- What is a disqualified Company director? How can I see if someone has been disqualified?
- What is PAYE? What is CIS?
Umbrella companies are primarily companies that act as employers to contractors who work on temporary contracts. This can either be through a Recruitment Agency or as an individual. The umbrella company will invoice the recruitment agency or client on behalf of the contractor and when payment of the invoice is received, the umbrella company pays the contractor through the PAYE scheme whilst allowing them to offset legitimate business expenses.
A good umbrella company will offer the contractor most, if not all, of the benefits of being a limited company, all this without the responsibilities, headaches, cost and time of the accounting and financial matters. In short this means the contractor can work in a tax efficient manner, without having to worry about IR35.
IR35 was legislation introduced by HM Revenue & Customs as part of the Finance Act 2000, and was aimed at addressing the £900 million loophole in the tax law.
A contractor can work in different ways, either through an umbrella company or a limited company. This, with the aid of an accountant, enables them to manage their income. Historically this can mean a low take-home salary drawn with expenses and a balance usually in the form of a dividend. A dividend will not attract National Insurance deductions or tax below a certain value, and so often is much more appealing to contractors.
IR35 target these individuals as opposed to umbrella companies who comply with the IR35 rules. The system is governed by the self-assessment process, in addition to the Inland Revenue assessing what tax it considers to have been avoided – up to 100% of the avoided tax can be issued as a penalty.
This terminology describes a person working on a temporary basis, i.e., short-term or long-term contracts for a client, in most cases this being a recruitment agency. Contractors often refer to themselves as freelancers or consultants although other terms do exist.
One Click Umbrella will employ you on an overarching employment contract meaning you are free to find your own assignments but still benefit from the protection that being employed gives you. It’s that simple! We sort out all your administration, insurance, accounts and employment rights. All your tax and National Insurance deductions are all paid through the normal HM Revenue & Customs pathways.
Yes, contractors tend to work in or at multiple sites, none of which are permanent. These sites or workplaces are classed as temporary, therefore the contractor can offset the cost of the travel & subsistence expenses getting to and from work, in addition to whilst being on site.
Simple, for a rough guide use HMRC online PAYE Tax calculator. This will tell you how much take-home pay you will receive as an employee of One Click Umbrella.
A rechargeable expense otherwise referred to as a billable expense, are costs you incur on a daily or ad hoc basis whilst on a contract. These have to be agreed/authorised by the client or agency prior to the contract starting so please do agree them in writing before the commencement date to avoid confusion.
Rechargeable: Received funds that are processed without tax and NI being deducted, reimbursed to you in full.
As a contractor, claiming can be a quagmire, or what is and what is not a legitimately claimed expense. I.e., Did you know you are allowed to claim for subscriptions to trade publications and textbooks if they are required?
Below is a list of just a few of the legitimate expense claims:
- Mileage (45p per mile up to 10,000 miles, 25 p per mile thereafter)
- Subsistence (Daily food & drink)
- Taxi, rail, air, and bus travel
- CRB checks
- Employment checks
An undischarged bankrupt is, in general, disqualified from holding certain public and private offices such as that of a member of legislature or of a director in a firm.
A disqualified director is an individual who has been banned from taking the role of director of a limited company as a result of not meeting their legal obligations. They can’t be a director of a UK limited company or an overseas company that has links to the UK, nor can they be involved in marketing or running such a company. Learn more
Companies House maintains a list of individuals who have been disqualified and this list can be found here
If you are a self-employed contractor working in the construction industry, you will normally need to decide whether you want to pay tax via the PAYE or CIS schemes. What’s right for one worker won’t always be a great match for another, so read on to find out what the key differences between the two schemes are.
Facts about CIS
CIS is the Construction Industry Scheme. This has been around for almost fifty years and was designed by HMRC to clampdown on construction industry tax evasion, protecting workers from false employment at the same time. Under this scheme, contractors are instructed to deduct 20% from their pay so tax and NI are covered. You need to register for CIS before you begin any work as a contractor or subcontractor.
Facts about PAYE
PAYE stands for Pay As You Earn. The vast majority of UK workers pay their tax and NI via this scheme. Earnings are used to calculate tax and NI payments, which are then deducted from take-home pay.
Which scheme is right for my needs and circumstances?
If you are a subcontractor paying tax through CIS, you will need to pay a fixed amount of 20%. However, your tax is decided by your tax code if you are on the PAYE scheme. You may also be able to claim some expenses back at the end of the tax year if you pay via CIS rather than PAYE. However, you won’t get paid for any holidays or sick days that you take when you pay via CIS.
A key benefit of opting for CIS is that you won’t need to pay as you go. You will have more admin duties to attend to, but you can pay in a single lump sum at the close of the financial year when you opt for ‘gross payments’.
You will need to register for CIS as a contractor before you take on any staff, and will need to verify any subcontractors, making sure they are also registered on the scheme and deducting 20% from their pay. You will need to file a CIS return on a monthly basis and ensure your calculations are totally accurate.
You can pay via CIS as a Partnership, Limited Company or as a Sole Trader. It’s also possible to move from PAYE to CIS and CIS to PAYE at any point during the financial year, rather than waiting until the end.