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PAYE, Ltd Company or Umbrella Company PAYE - Gross and Net Salary Gross Salary: amount earned before tax is deducted Net Salary: amount you get after Income Tax and National Insurance has been deducted On your payslip, you will see: Gross salary earned (including bonuses) Net salary The amount of Income Tax that has been deducted National Insurance contributions deducted Any elected pension contributions deducted Any student loan repayments, if owed You are taxed on your whole income which includes any benefits that your employer provides, such as a car allowance, a low interest loan or medical insurance. Tips should also be declared. If you are new to the UK: you need to complete a P46 form. If you have worked in the UK before: provide your new payroll department with your P45 issued from your previous employer. If you do not have this, you will need to complete a P46 form. The P45 form provides information on: your previous earnings, tax paid and tax code. Keep copies of your P45’s (leaving certificates) and P60’s (end of year tax certificates), salary slips, details pertaining to tips and gratuities, letters pertaining to pay or termination, receipts related to benefits. You will need these to: complete a tax reclaim apply for benefits/tax return overpaid tax credits HMRC recommend that you keep all your records for at least 22 months from the end of the tax year that they relate to. The tax year runs from the 6th of April to the following 5th of April. Property of Martin Ward Anderson 2009 Martin Ward Anderson accepts no liability for the accuracy of information contained in the document. We recommend you consult expert financial professionals. Contractors Umbrella Structure or Ltd Co Options Speak to a reputable service provider (registered with HMRC) who offers both products, to ensure you are not sold an inappropriate product. Top Tip: Ensure that your Limited Company Provider is a registered accounting firm to avoid been caught by the MSP legislation Step 1 - Before you set up either structure you should wait to receive your first contract. You may be offered a permanent job therefore you will not be able to run through either an Umbrella or Ltd Co set up You will need to investigate any contract that you are offered in conjunction with advertising and a job description to ensure you comply with IR35 regulations and can be paid via Ltd Co Step 2 - When you are offered a job find out these details from your recruitment consultant to help you investigate your IR35 compliance: Are you able to opt out of being an employee in any contracts? Is there an end date on your contract? Do you have a level of autonomy in your role? What level of supervision will you be under? You will need to have a basic job description to ascertain this. Do you have any employee benefits? Step 3 - Once you have the details of a reputable service provider ask them to break down what you will earn each month if you work through each option minus their fees. Step 4 - Choose the structure that is most legitimate for you to operate through and that will give you the largest take home pay. Step 5 - Let your recruitment consultant know how you would like to be paid. Check that your recruitment agency works with the Ltd Co / Umbrella structure service provider that you have been dealing with and send through all required documents to your agency’s payroll department NB Check with the service provider on their opinion on your IR35 status Seek a second opinion from a qualified financial advisor Refer to the HMRC notes on IR35 www.hmrc.gov.uk/leaflets/guide_limitcomp.htm IR35 This legislation only affects contractors who work through Ltd Co, you are protected from the IR35 legislation through the umbrella structure as this is a PAYE structure. The onus is on you to arrange your own tax planning if you choose not to be paid PAYE It is used to help determine whether you are employed or self-employed and therefore whether or not you should be being paid PAYE Should the Inland Revenue investigate your tax situation they will look at "the working reality" between yourself and the company you are providing services to NOT just the contract between you and that company. If you are being paid through a Ltd Co you will need to be able to show that you are not an employee Property of Martin Ward Anderson 2009 Martin Ward Anderson accepts no liability for the accuracy of information contained in the document. We recommend you consult expert financial professionals. IR35 is complicated and can have a huge impact on your earnings. You must get professional advice from your accountant about your IR35 status if you are the Director of a Ltd Co. It will be you who bears the responsibility for any unpaid or underpaid Tax and National Insurance It is important to understand each of the Payroll Options, whether it is possible for you to be paid in this manner and what your tax obligations will be Break Down of Process Ltd Co Contractors As a Ltd Co Contractor you will need to: Incorporate your company at Companies House www.companieshouse.gov.uk using your residential address Open a business bank account you cannot be paid into a personal bank account. Most recruitment agencies have policies to only pay into onshore bank accounts Have opted out of being an employee in any contracts. Thus, you will not be covered by any of your recruitment agency’s or employer’s insurance policies. Therefore investigate obtaining your own employers liability insurance and indemnity insurance if you work in an investment bank Be considered as the Director of your company. You can no longer use a Limited Company supplier to run your company; you must treat them as the accountants of your business Limited company service providers must now charge up front set up fees and then fees for accounting services i.e. Company Compliance, VAT Registration, Year End Compliance and Company Accounts. They can’t charge a percentage of your salary to cover costs. Many service providers charge an all- inclusive monthly fee to provide accounting services. It is worth noting that you may wish to submit your own year-end tax returns to reduce your costs. Seek good advice from a financial advisor or go to www.hmrc.gov.uk You may be able to claim deductions for your travel expenses, mobile phone, laptop and legitimate subsistence benefits as per HMRC rulings. Discuss with the service provider when you will be able to submit these receipts or speak with a financial advisor to ascertain how you can submit this yourself. To be paid by a recruitment agency as a Ltd Co Contractor you will need to supply: A Certificate of Incorporation Form 288a – Appointment of director Form 287 – Address of registered office Corporation tax registration form Limited company VAT registration certificate A signed Confirmation of Assignment letter A completed Consultancy Agreement Employers Liability Insurance Certificate Company bank account details Weekly you will need to: Send a time sheet to your recruitment agency Invoice your client for hours or days worked – this figure will match your time sheet submission As a Ltd Company Contractor you can: Property of Martin Ward Anderson 2009 Martin Ward Anderson accepts no liability for the accuracy of information contained in the document. We recommend you consult expert financial professionals. Apply for a flat rate VAT status, this means you charge your client for your hours plus full rate VAT (15%) but you pay back VAT at a lower percentage, the percentage is determined by the sector you work in. If you are IR35 compliant you may be able to pay yourself a proportion of your salary as dividends. Net profit of a Limited company is taxed at small company corporation tax rates (21% from April 2008 and 22% from April 2009). Dividends do not have NI applied to them, however you will need to pay both employee National Insurance rates as well as employer National Insurance rates on any salary that you pay yourself that is above the tax free threshold of £6,035. Generally, if a contractor complies with IR35 legislation they are free to operate as a Ltd company. In many cases this will provide a better financial outcome, however you bear the risk associated with operating a genuine business. As the Director of a Limited Company you are liable for all tax owed. It is imperative that you only use a reputable agency as the accountants of your business. They should be registered with HMRC and have at least one chartered accountant within the firm. Umbrella Structure Contractors With a PAYE umbrella company you become an employee of the company who is providing your pay roll service. As an Umbrella Co Contractor you will need to: Sign a scope of agreement between your Umbrella provider, recruitment agency, yourself and client agreeing for you to be 3rd party pay rolled Sign an Employment Contract with the umbrella provider – ensure that this is an overarching Employment Contract and is compliant with HMRC’s requirements Weekly, you will need to: Send a time sheet to your recruitment agency Ensure your Umbrella Service provider invoices your recruitment agency for hours or days worked – this figure will match your time sheet submission Weekly/Monthly, you will need to: Supply your Umbrella Service with receipts related to your expenses – expense receipts need to be supplied to your Umbrella Services, this is in accordance with the tax guidelines – ensure that your chosen Umbrella Provider is adhering to these guidelines Benefits: If you have not started working since arriving in the UK, you are able to offset your relocation costs up to the value of £8,000 if you have receipts and sign a scope of agreement in conjunction with your first contract. If you are not able to operate through a Ltd Co due to IR35 you can use this method You can claim for business expenses as per the Inland Revenue guidelines and include: Travel - to and from your temporary place of work. Includes mileage, travels cards etc Food and drink and lunch claims - You cannot claim for the cost of lunches taken as part of your normal working day as this is not ‘wholly and exclusively for business purposes’ Property of Martin Ward Anderson 2009 Martin Ward Anderson accepts no liability for the accuracy of information contained in the document. We recommend you consult expert financial professionals. Accommodation - The cost of hotel or bed and breakfast accommodation can be claimed as an expense as can the reasonable cost of additional meals taken in conjunction with overnight accommodation. There are no set costs but both costs must be deemed to be 'reasonable' Equipment - Claims must be supported by evidence that they are specifically required for your contract and wholly necessary for you to perform the assignment. Any general pieces of equipment or ‘nice to haves’ are not permitted by the Inland Revenue If the Inland Revenue decides to investigate you, you must have receipts to prove you made the original purchase, only claim for expenses you have actually incurred. Each week or month your Umbrella provider invoices the agency/client based on your time sheet. They then pay you a net salary after deducting national insurance contributions and income tax on all your earnings. To be paid by a recruitment agency your Umbrella Company provider will need to supply your payroll department with: A Certificate of Incorporation Form 288a – Appointment of director Form 287 – Address of registered office Corporation tax registration form Limited company VAT registration certificate A signed Confirmation of Assignment letter A completed Consultancy Agreement Property of Martin Ward Anderson 2009 Martin Ward Anderson accepts no liability for the accuracy of information contained in the document. We recommend you consult expert financial professionals.
"PAYE_ Ltd Company and Umbrella Company"