Employment Status

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...]

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Company Benefits Working From Home

Company Benefits - Working From Home

Fourth in our set of guides on expenses and company benefits is Working from Home. If you haven't read the first 3 articles you can find them here:

Taxation on Company benefits

If you receive company benefits through your employer you may have to pay tax on them. HMRC usually include the value of the benefit in your tax code, in order to collect any due tax through PAYE (Pay As You Earn).

How is it calculated?

For the 2013-14 tax year, each person is allowed to earn the basic Personal Allowance of £9,440 'tax free'. Any company benefit you earn will be deducted from this. For example, if you have a company benefit of £400, this will be deducted from your tax free allowance. Therefore your tax free income allowance will be £9,040.(£9,440 minus £400). Your tax code will be 904L. HMRC usually send a 'PAYE Coding Notice' to explain exactly how they have calculated the benefit in your tax code.

What Benefits?

Expenses and Benefits Part 4 - Working from Home

Equipment, services and goods

These might include, office equipment, internet provision, stationery items.

If an employer provides equipment, services and goods to enable an employee to work from home there is no requirement to report or pay tax and NICs on that benefit, providing that it is only used for the business (or usage is insignificant).

However if an employer provides equipment, services and goods to a Company Director or employee who earns £8,500 or more per annum, for business and private use, though there is no tax due on the benefit, a P11D must be completed and Class 1A NICs paid on the benefit. The 'benefit value' should be calculated on the cost to the employer of providing the items. Employees who earn £8,500 or less per annum have no requirement to report or pay tax and NICs on the benefit.

Additional household expenses

An employer may reimburse an employee for household expenses due to working from home, providing a) the facilities they need aren't available at the workplace or b) work requires them to live too far from the workplace for a reasonable daily commute to take place.

If the reimbursement does not exceed an employees additional household expense, there is no requirement to report or pay tax and NICs on that benefit.

Please note that employers must provide evidence that payments are no more than the additional household expenses incurred by the employee, if reimbursement is £4.00 per week or more.

If the reimbursement does exceed an employees additional household expense, it is subject to normal tax and Class 1 NCIs, as per the payroll system and should be added to their earnings. If there is no supporting evidence when calculating the value, any excess above £4.00 per week should be added to the employees earnings (for 2012/13). However, when evidenced, it is only necessary to calculate the actual excess on the reimbursement. e.g. if the employee spends £2.50 on fuel but the employee pays £3.00, there is an excess of 50p, which is liable to tax and NCIs contributions.

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HMRC Compliance

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.