Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.
Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.
Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.
The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]
HMRC utilises specific tax forms to track your annual and periodic payments of tax. When an individual works as a Full Time Employee (FTE), their tax affairs are straight forward and easy for HMRC to monitor.
As a contractor you will change roles fairly frequently, typically around every six months. If you are contracting through an umbrella company, the umbrella company will issue you with a P45 for the period that you used their services. If you use an umbrella company that has automated payroll and accounting solutions like iBalance [a vetted and approved umbrella company], you will be able to access your P45 whenever you need it so the world won't end if it find its way down the back of your sofa.
In a nutshell, HMRC loves tax forms so you need to ensure you are familiar with the key tax forms that you will need for your annual returns and proving your income between and whilst in contracts.
Your employer should give you a P45 when you stop working for them, you are entitled to it by law. The P45 document has four parts and is a record of your pay and the tax that you have paid on those earnings during the current tax year. The P45 also contains your; tax code, PAYE (Pay As You Earn) reference number, National Insurance number and the date you left employment. Part 1 of the document is sent to HMRC by your old employer and you retain the other three. You should give parts 2 and 3 to your new employer and retain part 1A for your own records. If you do not have a P45, your new employer should give you a Starter Checklist to complete. This form replaces the P46 and contains important information that affects the amount of tax you’ll pay. It enables your employer to allocate you a tax code. You should return the completed form to your employer as soon as possible to avoid paying too much tax.
Your employer should give you a P60 at the end of the current tax year, you are entitled to it by law. The P60 form is a summary of your pay and the tax that you have paid on those earnings during the tax year. The tax year runs from 6th April to 5th April the next year. The P60 is helpful for; completing a self-assessment tax return, applying for tax credits, claiming back National Insurance contributions and Income Tax, proof of earnings when applying for a mortgage. If you have lost your P60 your employer can issue you with a duplicate.
Though not required by law, your employer may give you a copy for your records. The law does however require that your employer give you details of what is included on the P11D form. The P11D form is completed by your employer to advise HMRC of any financial benefits you have received during the tax year, that have increased your income. If you havve earned at least £8,500 in the year (including the value of the benefits) your employer should complete the P11D, calculating how much each benefit is worth. Benefits may include; private medical insurance, interest free loan, company car. The P11D is useful when completing a self-assessment tax form, or to use as proof of additional earnings when applying for a mortgage. If you have lost your P11D your employer can issue you with a duplicate. If not, HMRC should be able to provide you with a copy.
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It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.
Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].
Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.