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 1 Transport

Limited Company Benefits

Tax, Tax, Tax! It feels as though running your business is all cost right? Guess what, you are getting it wrong! Clearly there are taxes that your will need to pay to HMRC (VAT, PAYE, CT not to mention NI) but these taxes are deducted after consideration of your operational costs and legitimate business expenses.

Its a tough environment out there, finding contractors and roles consistency is a challenge and very difficult when the challenge is financial.

In this series of articles, we take a look at expenses. Most companies, especially small companies, fail to claim expenses correctly, often under claiming expenses or making the wrong financial decisions. The worst small companies are those who don't make good use of accountant or fit for purpose limited company accounting package (like that provided by Tempo).

So why do independent contractors and small companies tend to under claim expenses? For most the under claiming spans from fear of HMRC and lack of knowledge. Good news, we are here to guide you and provide insight into what can be legitimately claimed as pre-tax expenses.  Our aim is to help you get to grips with expenses so you can make your earning go that little further.  Expenses can be the difference between growth and closing your business down.

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.

Expenses and Benefits Part 1 - Transport

What Benefits?

Car benefit

A Personal Allowance is not affected if the use of a company car is used solely for business purposes, described by HMRC as (a) 'journeys forming part of an employee's employment duties' e.g. journeys between appointments and (b) 'journeys related to an employees attendance at a temporary workplace.

A Personal Allowance is not affected for employees earning less than £8,500 per annum, regardless if the car is used for private use.

However, tax is payable on the benefit of using an employer's car for private motoring. HMRC calculates the value of the benefit by taking into account; the car's cost, fuel type and carbon dioxide (CO2) emissions value. Form P46 (Car) must be submitted as soon as a car is made available for private use or a car is withdrawn from private use, for employees or Company Directors who earn £8,500 or more. In addition, at the end of the tax year a form P11D must be submitted and Class 1A National Insurance Contributions (NICs) must be paid on the value of the car benefit. For more information, please visit the HMRC website and enter EIM23000: Technical guidance on the car benefit charge into the search engine.

Van benefit

If using an employers van for a private use, the employee has to pay tax on the value of using it. There is a standard charge of £3000. There is no longer a charge for electric vans. With regards to fuel, for the 2013-14 tax year, there is a flat rate charge of £564.

Car Fuel

A Personal Allowance is not affected if fuel provided by the company is used solely for business purposes, described by HMRC as (a) 'journeys forming part of an employee's employment duties' e.g. journeys between appointments and (b) 'journeys related to an employees attendance at a temporary workplace.

A Personal Allowance is not affected for employees earning less than £8,500 per annum, regardless if the fuel is used for private use.

For employees or Company Directors who earn £8,500 or more, a form P11D must be completed and Class 1A NICs paid on the value of the fuel benefit, unless (a) they supply their own fuel for private use (b)The company is reimbursed in full during the tax year for any fuel consumed for private use.

Pool cars

No tax is payable and no additional NICs are incurred when using a pool car, providing all of the following rules apply:

  1. It is used by more than one employee
  2. Not used exclusively by one employee
  3. Not usually kept at/near the employees home
  4. It is used solely for business journeys. (private use is permitted if incidental to a business journey, eg commuting home with the car to allow an early start to a business journey the next morning).

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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.