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...]
Her Majesty's Revenue and Customs (HMRC) is a non-ministerial department of the British Government primarily responsible for the collection of taxes, some forms of state support, some aspects of UK frontier protection and import controls.
HMRC was formed by a merger of the Inland Revenue and Her Majesty's Customs and Excise and came into formal existence on 18 April 2005.
The department is responsible for the administration and collection of direct taxes. This includes income tax and corporation tax, capital taxes such as capital gains tax and inheritance tax, indirect taxes (including value added tax), excise duties and stamp duty land tax, and environmental taxes such as air passenger duty and the climate change levy.
Other aspects of the HMRC's responsibilities include National Insurance contributions, the distribution of child benefit and some other forms of state support including the Child Trust Fund, payments of Tax Credits, enforcement of the National Minimum Wage and collection and publication of the trade-in-goods statistics.
HMRC 3 Targets
HMRC don't make the law, they just carry out the Government's wishes. If you don't like that vote for a different Party! This is what they do:
A word of warning for any contractor who may be taken in by some companies who falsley claim to be able to offer up to 95% net pay:
There is a massive amount of legislation that affects you as a contractor. If you want to find out more, visit HMRC's website. Unless you're an employment and legal specialist prepare to be confused.
You are not the only one. More and more contractors are choosing to contract through their own limited companies. HMRC has historically done all it can to prevent Umbrella companies trading. Why? Umbrella Companies allow people to work flexibly without the necessity of forming their own limited company. HMRC doesn't like the fact that umbrella companies legally reduce tax bills and make it difficult to track what the individual is doing.
Unfortunately, HMRC doesn't like Umbrella Companies as a significant number of them have operated illegal schemes in the past: using offshore systems, operating loan systems and illegally claiming expenses to over inflate their contractors take home pay to name but a few. This has left some contractors penniless and suicidal with some losing their homes. Why? When an umbrella Company gets it wrong, the tax man comes for you, the contractor! There is no protection from HMRC when using an Umbrella Company.
Don't Panic! The majority of current Umbrella Companies are compliant and will process your money correctly. If they promise you 90%, don't use them. It is nonsense, you will only take home 90% if you earn peanuts and fall below or marginally above the personal tax threshold.
Umbrella Companies normally provide you higher take home pay than a counterpart doing the same job working directly as an employee of the client but not always. The only way you are guaranteed to have more take home pay is if you form your own limited company, though this can seem like a lot of hassle if you don\'t understand what is involved.
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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.