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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The IR35 Test for Contractors IR35 Law

IR35 Test for Contractors

Much has been said about the IR35 tax law which brought to an end a very lucrative contracting lifestyle for some. The Labour Government brought in this new law back in 2000.

  • It's meant to stop what is called ‘disguised employment' and make people working through their own limited company as a contractor pay the same tax as an employee. However, there are still advantages of running your own limited company.

It wasn't directed at all contractors, just the ones who were really working in effect as employees of a client but doing so via a limited company.

Many such individuals used to work as an employee for a company, resign their job on a Friday then turn up the following Monday - doing the same job, at the same desk, for the same manager - but as a contractor and not an employee.

  • The client liked this arrangement because it meant they did not have the burden of the social costs (insurances/sick days/taxes/etc). The contractor liked it because they would be paid more for doing the same job.

IR35 stops that. There are no precise figures, but it's reckoned that 85% of IT contractors are caught by IR35.

Working Habits

Consider your own working habits, if you say ‘yes' to any of the following questions you are probably caught by IR35 and working through your own limited company is not a viable means of reducing your tax bill.

  • Are you the boss? Are you told what to do or do you decide what needs doing?
  • Who does the work? Is it you or do you get someone else to do it?
  • What equipment do you use? Is it your own or do you use your client's PC etc?
  • Where do you work? At the client's office or your own premises?
  • When do you work? When it suits you or as per the client's normal opening times?
  • How are you paid? Is it one lump sum for the job or by the hour/day?

Anyone who is caught by IR35 is simply wasting money and time if they trade through their own limited company.

What is Your IR35 Status?

You can see if you fall Inside or Outside of IR35 using the IR35 Status Calculator

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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.