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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Expenses and Benefits Part 3 Living Accommodation

Company Benefits - Accommodation

Third in our set of guides on expenses and company benefits is accomodation. If you haven't read the first 2 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 3 - Living Accommodation

For tax and NICs considerations, it may be enough for an employer to have 'provided' accommodation to an employee, regardless of the employee choosing to use it or not. More detailed information can be found on the HMRC website.

Exemptions - If an employer provides accommodation to an employee there will no requirement to pay tax or NICs for that benefit, if any of the following exemptions apply:

  • There is a personal relationship between employer and employee e.g. Mother and Son
  • A local authority provides accommodation with the same conditions that apply to non-employees.
  • It is necessary for the employee to reside there in order to work properly e.g. A caretaker who is on call outside the normal working hours.
  • It is customary to provide accommodation so the employee can do their work better e.g. pub managers living on the premises.
  • Accommodation is provided as a security measure, if there is a special threat.

Points 3 and 4 only apply to Company Directors who control 5% or less of the company and work full time for that company or work for a charity or non-profit making company.

In addition, there is no requirement to report, pay tax or NICs for the benefit if an employer also finances the Council Tax, water and sewerage charges.

However, there is a partial tax and NICs exemption for some other costs. Other costs are; heating, lighting, cleaning, repair, maintenance, decoration, furniture (for normal domestic occupation), domestic staff and gardeners. The 'reportable value' is limited to 10 per cent of the employee's net earnings, minus any contribution they make to the costs.

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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.