Contractors opting for the help of umbrella companies to manage administration, payment and taxation aspects of their contract jobs will have to take adequate care while evaluating the services offered by more than one such company in their region, before deciding on the most suitable service provider. Though all umbrella companies offer all the basic services required to handle different contract jobs efficiently, there are a few important services that are an absolute must for the deal to favour the contractor. Here are five such services that every UK contractor should consider before signing up with an umbrella company.
The firm’s taxation process should strictly confirm to HMRC guidelines and regulations, leaving no room for any kind of avoidance or violations. Sufficient options must be available to handle contracts that fall within and outside the scope of the IR35 and get handled accordingly, even though the tax benefits may be marginal when compared to the limited company structure.
The firm should be insured to guarantee the promised remuneration to the employee in case of any financial emergencies or economic crisis. The administration charges payable to the umbrella firm should ideally include professional indemnity insurance, public liability as well as employer’s liability cover.
Contractors by now should be aware that there no tax-free expenses in reality and one must not be expecting the same. Only genuinely permitted expenses can be reclaimed on submitting adequate proof of expense. Costs incurred on travel, software, subsistence, accommodation, training may be claimed accordingly as per the law. Relocation costs too are covered in a few cases when the contractor moves into the country for the first time. Companies with extensive claims options also have stringent clauses associated with the claims that they may not be practically usable.
Payment Frequency and Promptness
It is important to take note of the payment frequencies and the time taken to process payments, right from timesheet collection and invoicing to payment receipt and distribution. Umbrella companies usually adopt the Bankers’ Automated Clearing Services (BACS) or (Clearing House Automated Payment System) CHAPS to credit payments to the employee account. BACS transactions are cleared within 3 days while the CHAPS transactions are cleared on the same day and attract additional charges. The ideal payment processing time is about a week as the payment from clients routed through the umbrella company into the contractor’s bank account.
Foreign currency and Offshore Arrangements
Contractors in the UK working on offshore arrangements and who require their invoices and estimates to be calculated in foreign currencies will have to take adequate steps to evaluate the corresponding services that handle tax implications of payments or benefits that arise out of such arrangements. Services handling foreign currency loans and associated exemptions too will have to be carefully evaluated.
In addition, PAYE option should be available for those who are caught in IR35, to make sure that tax and NIC are automatically deducted at source. Job security, leave, pension, minimum wages and other employee benefits as part of this option are an absolute must for a novice looking to foray into freelancing work. All these five services when executed with care will help the contractor stay clear of the HRMC and go on with his work in a smooth and hassle-free manner.
Written by David Webster. David has worked at Dasa Consulting Ltd. in Borehamwood, England since 2008. He currently deals with IR35 issues in their contractors accountancy department. David studied finance at university and is currently studying to take an ACCA qualification, he hopes to go on and become a chartered accountant.