Contracting First Timer Guide

8/3/2019 Contracting First Timer Guide

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Contents:

1. Message from the Managing Director

2. Summary

3. General advice on starting out4. New to the UK?

5. Myths and facts about Umbrella Companies

6. What is IR35

7. Is my contract caught by IR35

8. What does it mean if I am inside IR35

9. Which service is best for me

10. Can I claim expenses

11. Payroll and taxation

12. Frequently asked questions

13. Client references

14. Special offers via our Members Services section

15. About ContractorUmbrella Ltd.


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Message from the Managing Director

Welcome at ContractorUmbrella we believe that your UmbrellaCompany should do more for you than just process your payments theyshould be available to answer your queries, deal with your paperwork,

liaise with your agency/client and make your life as a contractor ashassle-free as possible.

We are totally committed to excellent customer service and we willalways go that extra mile for our clients. To this end we have a CustomerService Charter which gives you definitive service levels and a uniquemoney back guarantee for total peace of mind.

We realise that where your money is concerned, speed is of the essence!To ensure that you receive your money without delay,ContractorUmbrella processes all recognised contractor payments thesame day they are received in our bank account.

ContractorUmbrella takes compliancy very seriously. We approachedKPMG to review our processes to ensure that ContractorUmbrella canguarantee total peace of mind for all its contractors. As a result we havebecome the first and currently ONLY Umbrella Company to be confirmedas fully compliant with all relevant HMRC regulations.

Please accept this Contractors Guide, with our compliments, which wehope you will find useful and informative. We have tried to make it as

simple as possible but some of the legislation is quite involved; for thisreason all our clients have a highly trained personal Account Managerwho is there to answer any questions.

For further information you may like to visit our website atwww.contractorumbrella.com . Alternatively you speak to one of ourexperts on 01206 713 680 or email us at [email protected] .

Kind regards

Lisa Keeble Lisa KeebleManaging Director


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Summary

This brief summary is designed to address some of the most commonquestions asked by our clients. For more detailed information on thesubject please refer to the appropriate section of this document, ourwebsite at www.contractorumbrella.com or contact us on 01206 713 680.

You are paying us to relieve you of the burden of worrying about yourtaxes and the administration associated with contracting. In order for usto do this most effectively we will need you to:

Provide us with a P45, or let us know you do not have one, as soon asyou possibly can after registration

Provide us with proof of your identity as soon as possible after

registration; this is to ensure compliance with money laundering laws.

Let us have a contact name and number for your agency/client so that wecan arrange all the necessary paperwork and make sure that yourtransition from permanent employment to contracting is as seamless aspossible.

Input details of your hours/days worked and your expenses to our onlinetimesheet once a week or once a month. Our highly advanced onlinesystems will then immediately automatically generate an invoice whichwe will then forward to your agency/client.

Leave the rest to us and relax!


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Starting Out

This may sound obvious but you will need to sign a contract with youragency/client before you begin working with them. This is a legallybinding document which you should read thoroughly before signature.

Below is a quick list of points we recommend you check:

Start and finish dates Pay rate Payment terms Notice period Standard working hours

If there is anything that you are not happy with in the contract you

should let the agency, or client, know before it is signed. You should alsomake sure that you fully understand what is contained within the contract if you are not sure you should ask your agency/client. If you do notadhere to the terms set out you could, potentially, be sued for breach of contract.

If you opt to work through an agency you may be quoted 2 rates onewhich will apply if you work PAYE through their payroll and another,higher rate if you use an Umbrella Company or Limited Company. Thereason for the lower rate is because going PAYE through the agency; theytake on all the employer responsibilities including the financial obligationsthat are involved.

If you decide to work through an Umbrella Company, your agency willneed their details in order to produce a contract. A good UmbrellaCompany will contact your agency directly and sort out all the necessarydocument exchanges without you having to become involved.

Your contract will cover what is expected of you whilst you are working onthe client site in terms of Health and Safety, fire regulations, dress codeetc.


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Myths and Facts about Umbrella Companies

There are many misconceptions about Umbrella Companies and the HMRCrules that surround them. Some of these misconceptions, if believed,could leave you with a large tax bill and possibly, equally large fines fromHMRC. The facts that we have listed below can all be supported frominformation found on HMRCs website for full details please visit ourwebsite.

Myth: A special dispensation with HMRC means that oneUmbrella Company can allow contractors to claim moreexpenses that another.

Fact: When an accountant processes expenses he will normally need

to record the details on an HMRC form called a P11D and also be ableto produce receipts to support those expenses. This creates a greatdeal of work for an Umbrella Company so they apply for adispensation from HMRC which allows them to process some expenseswithout having to record them on the P11D or file receipts.

However, the dispensation does not apply to you, as an individual,and therefore you must keep receipts for any expense that you claim.It is also not an indication of the expenses that you are entitled toclaim to claim an expense you must have first incurred the cost andit must be wholly and exclusively incurred in the performance of thecontract.

Any amounts quoted on the dispensation are the limits up to whichthe Umbrella Company can process expense claims without recordingthem. If the limit shown for accommodation is 95 it does not meanthat you can claim this amount each night that you stay away fromhome if you only spend 65 you can only claim 65.

Myth: A daily subsistence allowance is an expense I can claim,without receipts, for being out of the house for more than a

certain number of hours a day.

Fact: A subsistence payment is, by definition, one that does not haveto be supported by receipts. The only subsistence payment permittedby HMRC is 5 per night (10 if abroad) for each night spent awayfrom home during the course of the contract. You must be able toproduce receipts for any other costs that you claim as an expense;HMRC requires that you keep your receipts for a period of 5 years.


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Myth: I can claim for my breakfast and lunch as an expense.

Fact: You can claim actual meal costs whilst you are working at aremote site i.e. away from your normal place of work or when stayingaway from home overnight but daily claims for meals are not

permitted. It is HMRCs belief that you need to eat regardless of whether or not you are at work so the meal costs are not whollyattributable to the contract and can, therefore, not be claimed as anexpense.

Myth: Some Umbrella Companies charge a high fee but theycan guarantee that I will pay less tax.

Fact: All Umbrella Companies are controlled by HMRC. The tax youpay is dependent on your personal tax code; National Insurancecontributions are a fixed percentage and you can only claim thoseexpenses that HMRC approve. Remember, a dispensation means thatthe Umbrella Company does not need to see your receipts; it does notmean that you dont have to have them! The only factor that willaffect your take home pay is the Umbrella Companys fees.

Myth: An online calculator only needs my hourly or daily rateto work out my earnings.

Fact: Your net earnings will be affected by your tax code and theexpenses that you can legally claim. An online calculator should

operate using a standard tax code and a calculator that does not askfor you expenses will assume a figure. This means that the calculationwill never be accurate as everyones expenses are different.

Myth: An Umbrella Company can pay me a minimum wage anddividends which will earn me more money.

Fact: Being paid basic wage and dividends would be more financiallybeneficial to you. However you can only be paid this way if yourcontract is IR35 friendly (outside IR35) and you are receiving

payment through your own personal Limited Company, over whichyou have complete financial and administrative control. From 6 th April2007 any involvement from a third party in running a LimitedCompany (other than accountancy services) would place you underthe scope of a Managed Service Company (MSC) If you receiveyour payments via a third party or your contract fails IR35 (insideIR35) and you are running your own Limited Company, you can onlybe paid through PAYE


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Myth: My contract can be written to fall outside IR35 (or to beIR35 friendly).

Fact: This is, in fact, true but if the contract does not accuratelyreflect your actual working practises it would not be of any benefit in

the event of an IR35 investigation. If, for example, the contract statesthat you can provide a substitute worker but, in reality, you would notbe able to you could find yourself in serious trouble. If you are beingpaid a combination of minimum wage and dividends and HMRCdeemed you to fall inside IR35, you would be liable to pay back all theunderpaid tax, a penalty and, worst case scenario, you could beprosecuted for tax avoidance.

Myth: I can pay part of my salary to my partner to minimisemy tax contributions.

Fact: New draft legislation has been produced after the success of theArtic Systems case in December 2007. From April 2008 it will bepossible to pay part of your income to a partner, but only if there is agenuine commercial arrangement - this would however only bepossible through your own Limited Company. For more information onthe draft legislation please click here .

Myth: I can just switch Umbrella Company when I breach the24 month rule and continue to claim expenses.

Fact: Moving Umbrella Company will not change the situation as therule applies to your actual place of work rather than the company youuse. A workplace is deemed as a temporary site providing yourattendance lasts no longer than 24 months. After 24 months aworkplace is viewed as a permanent site and, if you spend more than40% or more of your time at the same site you are no longer able toclaim travel between home and that place or accommodationexpenses.

Myth: I am protected from investigation from HMRC by my

Umbrella CompanyFact: If you claim expenses fraudulently and HMRC becomes aware of it you will be investigated and you will be liable for anyunderpayments of tax and any associated penalties. It is worth notingthat HMRC do investigate at random and no company can offer youprotection against investigation.


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Myth: An Umbrella Company can help me minimise my taxcontributions

Fact: All Umbrella Companies pay through PAYE and your taxcontribution is deducted, according to your tax code, each time that

you are paid. Your taxable income will be reduced when you claimexpenses BUT HMRC dictate what expenses you can claim and not theUmbrella Company and therefore your net earnings (or take homepay) should be the same whichever company you use.

What is IR35?

The IR35 legislation was introduced by HMRC in April 2000 and wasintended to combat tax avoidance. It affects all contractors who do not

meet HMRCs definition of self-employment and applies to anyoneworking via an intermediary such as a company or partnership. Since theintroduction of the legislation contracts can be tested to confirm whetherthey fall inside or outside of IR35. These tests are used to determinewhether, if it were not for the intermediary, the contractor would be anemployee of the end client. The contract must be totally representative of the individuals working practises and would fail the IR35 test if this isnot the case.

ContractorUmbrella Ltd will be more than happy to conduct a free reviewof your contract and will confirm your IR35 status within 24 hours please contact [email protected] or 01206 761326.

Is my Contract Caught by IR35?

HMRC have put together a number of simple questions that you cananswer which will help to determine your status. If you answer yes tothe following then it is likely you will be deemed a disguised employee and will therefore fall inside IR35:

Do you have to do the work yourself Can someone tell you at any time what to do, where

to carry out the work or when and how to do it Will you work a set amount of hours Can someone move you from task to task Are you paid by the hour, week or month Will you receive overtime pay or bonus payment


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If you can answer yes to the following questions it is morelikely that your contract will fall outside of IR35:

Could you hire someone to do the work or engagehelpers at their own expense

Do you risk your own money Do you provide the main items of equipment youneed to do your job, not just the small tools thatmany employees provide for themselves

Do you agree to do a job for a fixed price regardlessof how long the job may take

Can you decide what work to do, how and when to dothe work and where

However, the legislation is a little more complicated than these simple

lists would suggest and we would advise that you have your contractprofessionally evaluated. Please contact [email protected] fora free review.

What does it mean if I am Inside IR35?

IR35 determines the way that you are paid. Before the introduction of thelegislation contractors invariably worked through their own LimitedCompanies and drew dividends from the profits, which do not attractnational insurance contributions. However, HMRC determined that, if acontract falls inside IR35, the contractor would be obliged to draw asalary from their company.

For contractors who had a Limited Company, but no staff this meant thatthey were both employer and employee and subsequently bothemployees and employers national insurance were payable. Therefore,regardless of whether you operate through a Limited Company or anUmbrella Company, if your contract falls inside IR35 you will be liable topay income tax, employees and employers national insurance.

From April 2007 contractors will only be able to receive dividends if theyoperate their own personal Limited Company. If they receive paymentthrough an intermediary then they can only receive payment via PAYE,which means paying income tax and both employees and employersNational Insurance.


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Which Service is best for me?

If you are new to contracting, have a short term contract or intend toreturn to permanent employment within 1 year we would suggest thatyou use an Umbrella Company. The Umbrella Company is responsible forsending your contributions for tax and national insurance to HMRC andalso for providing them with details of your earnings and tax paid at theend of the financial year. Your Umbrella Company should provide youwith a payslip each time that you are paid and also a P60 at the end of the year. If you have no other source of income there will be no need foryou to complete a self-assessment form.

If you are a career contractor or your contract falls outside of IR35 wewould recommend that you set up your own Limited Company. You wouldneed to keep records for your invoices raised, funds received, bills paid

etc and you would also need to retain a proportion of your income to paycorporation tax as well as for your personal tax obligations. However, if your contract falls outside of IR35 your net earnings would be higher thanif you worked through an Umbrella Company as you would be entitled todraw dividends from your company which do not attract nationalinsurance contributions.

If you would like to discuss setting up a Limited Company or would likesome more information please contact our colleagues at SJD AccountancyLtd at www.sjdaccountancy.com or on 01442 232700.

Can I Claim Expenses?

Yes! As a flexible employee of ContractorUmbrella, with multipleassignments, you are still able to claim expenses against your contract. We will sign a contract with your agency/client for the provision of services, and this will enable you to continue claiming expenses for up to24 months at any one site.

Unfortunately it is not possible to give you an exhausted list of expenses

that you can claim, as this will vary from person to person. However, forsomething to be an allowable expense the cost must have been incurredwholly and exclusively because of the contract.

We have put together a list of the most commonly claimed expenseshere: http://www.contractorumbrella.com/expenses.html but, remember,you must be able to be able to prove that the expense was incurred in the


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course of your duties and you should also ensure that you keep receiptsfor a period of 6 years.

Payroll and Taxation

Working through an Umbrella Company, you are paid via PAYE whichstands for Pay As You Earn, this means that your tax and nationalinsurance contributions are deducted each time that you are paid. Due tothe IR35 legislation that was introduced several years ago you will beliable for employees and employers national insurance contributions aswell as income tax. The calculations for these deductions are somewhatcomplicated but, basically, each is taken as a percentage of yourearnings.

This means that, despite promises to the contrary, your earnings through

one Umbrella Company will be exactly the same as through another theonly difference will be the fees that are charged for the service. PAYEmeans that your tax liability is calculated each time that you are paidthroughout the financial year and therefore, if you receive no otherincome during that period, there will be no additional tax liability at theend of that financial year.

If you receive payment via PAYE you can expect to receive a payslip eachtime that you are paid and this should detail your gross income, tax andemployees and employers national insurance deductions, your UmbrellaCompanys fees, your expenses and your net income i.e. what you will betaking home. The payslip should also contain details of any otherdeductions such as student loan or CSA.

At the end of each financial year, if you are being paid via PAYE at thetime, you will receive a P60 which will show your earnings for the year aswell as the total tax that you have paid. When you leave an UmbrellaCompany you should also receive a P45 which should be produced assoon as they receive your final payment. The P45 will show your earningswhilst using their services as well as the tax that you have paid. It willalso show the tax code that is currently being used for you; this

document acts as a way for HMRC to track your employment.

The payroll staff at ContractorUmbrella will be more than happy toanswer any queries that you have regarding the PAYE system and if youwould like an illustration of your earnings please use our onlinecalculator .


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Frequently Asked Questions

i. What benefits does this scheme provide?

As an independent contractor you need to ensure that you are fullycompliant with HMRC legislation. ContractorUmbrella makes payment toyou through PAYE as is required by legislation announced in the 2006pre-budget report. You can be secure in the knowledge that your tax willalways be deducted at source and therefore you will have no nastysurprises at the end of the tax year.

ii. How much does your scheme cost?

Our fees are fixed at just 26.50 per week or 85.00 per month. Feesvary widely and you should be wary of those Umbrella Companies who

deduct a percentage of your earnings as what you pay them will increaseas your rates increase. The work that the Umbrella Company has to dodoes not vary according to the rate that the contractor is being paid!

iii. How much money can I expect to take home?

You can obtain an estimate of your earnings from our online calculator .

You may find, that if you compare calculators on Umbrella Companywebsites, that the figures it provides are different. This is usually becausethe company has made assumptions as to the expenses you will be likelyto claim whilst using their services. Obviously, if the assumption isincorrect, which it invariably will be, then the figure will be totallymisleading.

You should ensure that you are comparing like with like and the UmbrellaCompany in question should be able to provide you with a completebreakdown of any figures that they provide you with. The only variablefactor in your net pay is the fee charged by the Umbrella Company, allother figures are determined by HMRC regulations.

iv.

What happens when I register?

When you register you will receive a number of emails from us which willask you for identification to comply with money laundering andimmigration regulations which you must send to us by post before we willbe able to release funds to you. You will also receive a demonstration of our systems and comprehensive notes to help you get started.


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You will also be contacted by your personal Account Manager who willintroduce themselves as your contact within ContractorUmbrella. YourAccount Manager is there to answer any queries that you may have or toexplain any legislation that you do not understand.

v. What happens if I do not have a P45?

Not having a P45 will not necessarily delay your payment provided thatwe have received proof of identification from you we can pay you usingan emergency tax code. Many people think that this means you will pay20% tax on all your earnings this is not the case that is a basic ratetax code.

An emergency tax code means that your tax free pay will be applied as afixed amount each week or month rather than be applied as a cumulativefigure to your cumulative earnings. Once we receive your P45 yourhistorical earnings and tax paid are applied and, assuming your P45 doesnot list your tax code as an emergency code, your tax will then becalculated on a cumulative basis. If there was a gap between yourprevious and current contracts you may be entitled to a tax rebate thiswill be worked out through PAYE and will be paid to you as part of yourearnings; it will show on your payslip as a minus figure.

vi. When will I be paid?

We will invoice your agency who will then transfer funds to us according to

their payment terms. As we run a payroll every single working day; wewill make payment to you the same day recognized funds clear in ourbank account.

For funds to be correctly allocated your agency or client must send us aremittance advice either by post or [email protected] . If the remittance advice is receivedafter our 12pm deadline your payment will be made the following day oralternatively on the day that the remittance is received.

If we have not received funds for you, in that particular month, we willmake a payment to you on the last working day of the month based onthe current minimum wage.

Our normal method of payment is BACs transfer (Bank AutomatedClearing System) which is an electronic transfer directly into yourappointed bank account. If you need funds urgently we can arrange aSame Day payment which guarantees that the money will arrive in your


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Client Testimonials

Our clients come back to us again and again here are just a few of theircomments about our service:

" I have been using your services since two months now and I could not be more satisfied with their quality.

Indeed, I was not expecting such a level of flexibility, professionality and kindness. Every time I've had a problem, it has been solved promptly by my accountant and there has never been a delay of any kinds indelivering your services.

Furthermore, when I moved from an employed position to a self-employed one, I was a little bit concerned about the difficulties involved in such a process, but the clarity and richness of information provided onyour website, together with the professionality of my accountant, made it extremely easy.

Frankly, I would strongly recommend Contractor Umbrella to anyone whoneeds this kind of services."

Francesco Politi West Drayton

I have been using Contractor Umbrella, (CU), for over 6 months duringmy last two contracts.

I have found, much to my surprise in these days of poor customer service, that the CU team deliver exactly what they promise. Payment isfast, charges are very reasonable and the staff are extremely efficient and helpful.

I have recommended CU to numerous people and all of them are very happy with the service they receive.

I have had one problem in the last six months. This was not the fault of CU, in fact my Account Manager did not have to become involved at all asthe problem was between my agency and the client. Despite this my

Account Manager harried both other parties to sort out the problem to my satisfaction.

This is a fair reflection on Contractor Umbrella and its staff. They do that little bit more to make sure that you are Happy with the service


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As a member of ContractorUmbrella you also receive access to thesespecial offers through our Members Services section:

Pension Scheme Access to our market leading tax efficient pension scheme.

Contract Opportunities ContractorUmbrella can help you find that allimportant next contract!

Wealth Management - Specialist independent financial advice on incomeprotection, life and critical illness cover and investments.

Contractor Mortgages Getting a mortgage as a contractor doesnt have tobe difficult!

Childcare Vouchers Benefit from both tax and NI relief with our Childcare

voucher scheme.

Private Medical Cover - 25% discount on BUPA private medical cover.

Travel Insurance - 20% off BUPA Travel cover.

Contractor Accommodation - A one-stop-shop for all your accommodationneeds as a contractor.

Give As You Earn - Reduce your tax liability by donating to the charity of yourchoice.

Foreign Currency Exchange Maximise the return on your foreign currency

PI Insurance - Does your contract require Professional Indemnity insurance?If so, you can receive a no obligation instant quote & pay monthly interest-free!

If you have any further questions about using an Umbrella Company,please do not hesitate to contact a member of our team on 01206 713681or email us at [email protected] .

In a nut Shell, ContractorUmbrella know their stuff. You won't find better. - UmbrellaSupermarket


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About ContractorUmbrella Ltd

ContractorUmbrella is one of the largest and most respected Umbrella Companies in theUK. Established in 2002, we are now recognised as being a market leader with severalthousand satisfied clients.

ContractorUmbrella is part of the SJD Group of accountancy companies, which includesSJD Accountancy who are the chosen firm to over 8,000 contractors working throughtheir own Limited Company, winner of the prestigious Accountancy Age Awards forExcellence and are the National firm of Accountants recommended by the ProfessionalContractors Group.

ContractorUmbrella is the ONLY Umbrella Company in the UK which has heldprofessional accreditations with the three leading industry bodies - KPMG , ProfessionalPassport AND APSCo .

ContractorUmbrella featured 14 th in the FastTrack 100 league table of Britains fastestgrowing companies in 2007. Visit here for more information.

ContractorUmbrella was awarded the prestigious Investors in People accreditation in2006.

Key Features

Unlike other Umbrella Companies we do not charge a percentage of your income,our fee remains the same regardless of your earnings.

No hidden joining or leaving charges, no minimum commitment and no feescharged in-between contracts.

ContractorUmbrella Ltd is an alliance partner of Contractor UK, ContractorMoney , Freelance UK , Freelancers in the UK and associate members of theProfessional Contractors Group the UKs largest trade body for contractors.

Money-back Customer Service Guarantee . Web-based portal giving 24/7 access for both timesheets and expenses submission. Personal Account Manager for every client.

Contracting First Timer Guide

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