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We know that the world of contracting can be a daunting and sometimes confusing place. If you don’t know your IR35 from your elbow, we have produced a jargon buster for you to help. If you need any further information, or would like to speak to someone to ask any questions please do not hesitate to contact us on the details below.
This is a HMRC policy which states that once you have been made aware (i.e. you have a contract to state) you will be, or have been, based at a specific site for more than 24 months, this is no longer deemed as a temporary place of work and hence you are not entitled to claim for business expenses. HMRC deems it irrelevant as to who your employer is, as it is the location that is important. i.e. you cannot change umbrella organisations to avoid this and thus continue to off-set expenses.
The 80% rule refers to the restriction that we apply to contractor’s expense claims. This is set at 80% of the invoice total to ensure that claims are realistic and that earnings do not fall below the national minimum wage. You will not ‘lose’ the expenses as any excess claims will be carried forward to the next payment.
This is the cost that Crystal Umbrella deducts from the invoice total received from your agency / client to cover the cost of processing your income. i.e. calculating and paying your Tax, Employers and Employees NI and processing your business expenses as well as funding the professional insurance package and payroll function.
BACS stands for Banker's Automated Clearing Services. This is a payment that the bank will process from Crystal Umbrella into your account and this normally takes 2 working days to clear.
Please refer to the Claiming Expenses section of the website which illustrates which of your business expenses that have been incurred due to your work commitment can be claimed.
Workers in healthcare, security, teaching, social services and any profession involving contact with children, elderly people and other ‘at risk’ categories are required to have an up-to-date CRB check. This will ensure they have no criminal offences and are not listed on a sex offenders list. The cost can be offset as an expense if a check is required for a particular contract.
Employee benefit trusts are vehicles through which remuneration and other benefits are indirectly paid to employees. The trusts were designed to minimise the tax liabilities of employers and employees. HMRC have introduced legislation to counter the avoidance of tax and national insurance contributions through the abuse of EBT’s, such as setting up the trusts offshore but never paying anything out. More detailed information can be found on our payment solutions page.
This is the process Crystal Umbrella follow in order to satisfy government legislation relating to the employment and payment of any worker in the UK. We follow strict procedures in proving you are who you say you are.
This covers you as an individual if you are made ill or injured through your works fault. Crystal provides each contractor employee with £10 million in cover as standard. You can find our insurance certificates in our downloads section.
If you are interested in making charitable donations straight from your payslip these can be collected as part of the GAYE scheme. This means that the donation amount will be deducted from your salary each month before tax is applied.
This is the figure that a contractor’s tax is calculated on after expenses and other deductions have been applied to the invoice total.
This is the amount that you earn before any deductions have been made in regards to income Tax, National Insurance and other statutory commitments.
Her Majesty’s Revenue & Customs is a non-ministerial department of the British Government primarily responsible for the collection of taxes and the payment of some forms of state support. 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's logo is the St. Edward's Crown enclosed within a circle. Crystal Umbrella follow strict guidelines set by HMRC in the calculation of all taxes and National Insurance Contributions, we also use HMRC approved payroll software.
The invoice total is the amount that we invoice your agency/client. The calculation will be your charge out rate times the number of hours you have worked.
On 9th March 1999, the Inland Revenue issued a press release detailing how they were to close the loophole that allowed freelancers and contractors to avoid paying large amounts of tax and national insurance by using a personal service company, composite company or business partnerships. See our IR35 section for more detailed info.
IR56 is the term given to the legislation that the HMRC use to determine if you are employed or self-employed; being employed or self-employed plays a big part in the way and amount of Tax and National Insurance you pay. The IR56 legislation is used in conjunction with the IR35 legislation.
Legislation is a law or laws passed by an official body. Find more details on our legislation page.
Managed Service Companies (MSCs) are composite company structures. In these structures, individual contractors will be the shareholders of the company but do not participate in the management of the company. The Company will be managed by a service provider. Contractors would then receive a mixture of salary and dividend payments.
An Umbrella Company is often confused with a Managed Service Company (MSC), however; Umbrella Companies will not fall under the definition of MSC Legislation as laid out by HMRC as for a company to be a Managed Service Company it must fulfil all four conditions of Section 61B (1), Chapter 9, Part 2 ITEPA. Umbrella Companies do not satisfy the third condition.
“The payments received by the worker are greater than they would have received if all of the payments were treated as employment income of the worker relating to an employment with the service company.
As umbrella companies do not pay dividends and consider whole income as employment income, they are not Managed service companies.
In the view of HM Revenue & Customs (HMRC), MSCs existed due to the lack of application of "IR35" in this sector. Also, it was identified as the cause of lack of compliance. In December 2006, the UK Treasury introduced draft legislation called "Tackling Managed Service Legislation," which seeks to address the use of "composite" structures to avoid income tax and National Insurance on forms of trading that the Treasury deems as being akin to being "employed." After a period of consultation and re-draft, the new legislation became law in April 2007, with additional aspects coming into force in August and fully in January 2008.
PAYE umbrella companies are effectively exempted from the legislation, which also seeks to pass the possible burden of unpaid debt (should a provider "collapse" a structure) to interested parties (Transfer of Debt), e.g., a recruitment agency that has been deemed to encourage or facilitate the scheme.
MSC stands for a Managed Service Company. This is a company that provides the services of people to other companies. These are now illegal as the contractor avoids paying tax as they claim dividends from the company. Crystal is not an MSC or affected by the legislation due to our PAYE only tax status.
National Insurance (NI) in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits. It was first introduced by the National Insurance Act 1911, and expanded by the government of Clement Attlee in 1946. The contributions component of the system consists of mandatory contributions, National Insurance Contributions (NICs), paid by employees and employers on earnings, and by employers on certain benefits-in-kind provided to employees. Temporary workers belonging to Umbrella Companies such as Crystal Umbrella are responsible for both Employees and Employers NIC.
This is the amount that you are paid once Tax, National Insurance Contributions and processing costs have been deducted. This amount of money will be paid into your bank. No further deductions are made to this payment once paid to you.
This is a contract of employment that Crystal Umbrella will give you, which will state how you will work with us.
This is issued by your previous employer to you and the HMRC and details your earnings to date in the financial year as well as your personal tax code. This needs to be presented to Crystal as soon as possible after joining us. If you do not have a P45 we can provide you with a P46 which will be sent to the HMRC in order to allocate your personal tax code. A P46 can take up to 12 weeks to be processed by HMRC which will effect you as a temporary tax code will be used in the interim period.
If you do not have a P45 we will provide you with a P46 (or download a P46 here) to complete, which will be sent to HMRC to allocate your tax code. There is normally a delay (which can be 6 – 12 weeks) in this getting through HMRC’s system and you will be placed on a temporary tax code until your correct tax code is confirmed to us.
In the UK and Ireland a P60 (End of Year Certificate) is a statement that Crystal Umbrella will issue you at the end of year (around May) which will record the Tax and National Insurance paid to HMRC in the previous financial year. It is important a taxpayer does not destroy the P60 forms issued to them, as they form a vital part of the proof that tax has been paid.
When you do register with Crystal Umbrella you will be allocated a Account Manager who will be looking after your account during your contract. They will be your first point of contact and you will have their direct contact details should you have any questions at all.
The Pay As You Earn (PAYE) system is a method of paying tax. The employer deducts tax from the employee’s wages before paying the wages. This means that tax is paid over the whole year, each time the employee is paid. The amount of these contributions is determined by the employee’s tax code.
Your payment frequency is how often you are going to get paid. You will negotiate this with your recruitment agency / client and it can vary from weekly, fortnightly, 4 weekly or monthly etc.
This insurance protects you against a claim made by your place of work. This allows compensation to be paid if you are found to be negligent or have made a mistake whilst working. Crystal provides each contractor employee with £5 million in cover as standard. You can find our insurance certificates in our downloads section.
This insurance will cover you, if you are found to be responsible for personal injuries to a third party and/or product. Crystal provides each contractor employee with £5 million in cover as standard. You can find our insurance certificates in our downloads section.
These are expenses that the client has agreed to reimburse to the contractor and are raised along with time worked on an invoice. The contractor normally has to complete the client’s expense form, but if this is not possible it needs to be on a separate expense form and clearly indicated that the expenses are to be invoiced and reimbursed to the contractor.
We encourage contractors and agencies to recommend our services to other contractors. Contact us for details of our incentives.
Remittance is written notification stating that the agency/client intends to make payment to us on an outstanding invoice. Remittances help track which contractors are being paid for which invoices. Contractors can be paid on receipt of remittance before we receive actual funds.
Only one payment can be processed to a worker per tax week (which currently runs from Tuesday to Monday). If another payment becomes due, both are added together on the re-run payslip (which replaces the original) and the first net payment is deducted from the total net amount; Tax and NI are adjusted accordingly. If you have any questions or if you have a re-run payment, your AM will be happy to explain the details for you.
A salary sacrifice happens when an employee gives up the right to receive part of the weekly/monthly pay. Usually the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit, like child care vouchers.
Often referred to as a faster payment or CHAPS (Clearing House Automated Payment System) this is a payment made manually by Crystal which clears into your bank account the same day as it’s processed.
This is a declaration made to HMRC which states what you have earned over the previous financial year. You will not be required to complete a self assessment for any income processed by Crystal Umbrella, unless you are a random case selection made by HMRC or have earned income outside that which is processed by Crystal or a higher rate tax payer.
A self billing agency/client will not require invoices to be submitted and will raise payments based on the timesheets submitted by the contractor. The contractor will need to also submit expenses to Crystal Umbrella so that they can be offset against tax once payment arrives.
Crystal Umbrella, as your employer, is legally required to pay your statutory sick pay (SSP), maternity pay (SMP), paternity (SPP) or adoption pay (SAP) in line with company policy and guidelines during continued absence from work due to any of the above.
Your tax code can be found on a P45, P60 and at the bottom of your payslips. If you multiply the number in your tax code by ten, you'll get the total amount of income you can earn in a year before paying tax. The letter shows how the number should be adjusted following any changes to allowances announced by the Chancellor and further details can be found in the Tax Codes fact sheet on our downloads page.
The tax year for 2013/2014 runs from Saturday to Friday. Clients cannot receive more than one payment in any one tax week. If two payments are due to be processed to you a re-run adjustment will be made (see re-run payments)
When you are being paid as an employee your tax is calculated per week and you are entitled to a tax free allowance of £181.71 per week (subject to your tax code). These are built up if you do not get paid for a few weeks. For instance if you are paid monthly you would have not had a payment in 4 weeks, totalling £726.84 that you are entitled to earn tax free.
This is the record that you send to your recruitment agency and/or Crystal Umbrella detailing what hours you worked within a given time period. This is used by the recruitment agency and Crystal Umbrella in order to raise invoices for the work completed, which begins the payment cycle.
An umbrella company is a company that acts as an employer to Agency contractors who work under a fixed term contract assignment, usually through a Recruitment Agency. Recruitment agencies issue contracts to a limited company (in our case Crystal Umbrella Ltd), this reduces the agencies employment liability. The Umbrella Company then issues invoices to the recruitment agency (or client) based on timesheets submitted by the contractor, when payment of the invoice is made, will typically pay the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as Travel, Meals, and Accommodation etc.
Umbrella companies have become more prevalent since HMRC introduced so-called "IR35" legislation that creates tests to determine employment status and ability to make use of small company tax reliefs.
This is a tax that is added to certain goods and services (usually at 17.5%), which is paid to HMRC. VAT is charged on invoices to the agency / client although some contractors (such as doctors) are exempt.
These prove an individual’s eligibility and right to work within the UK/Europe. If a contractor is new to the UK and from outside Europe they will need to apply to the Home Office for the necessary documentation.
If a contractor does not have an up to date tax code (normally from a P45) they will be put on a week 1 / month 1 tax code. This tax code does not take in to account any other earnings in the tax year and is applied on a week by week basis. Any tax overpayment will be rectified once the correct tax code is assigned by HMRC.