New to Contracting? Top 5 Questions Received by Umbrella Companies
28 March 2012
Author: David Davies
Workers using limited company services for the first time often find the choices they are posed a little daunting.
We are often asked questions as part of the registration process and some of the most frequently asked queries are outlined below;
- How much does the service cost? The charges for using most umbrella or CIS services generally tend to be around £20 to £25 per week. Most fees are quoted on a gross basis but you should remember that fees in most cases are generally subject to tax relief and as such will be around 20% lower once the tax relief is taken into account. Umbrella and CIS services should always work on a strictly no work, no fee basis and it is always worth checking that no additional charge is made for multiple timesheets submitted in the same week. Contractors should also bear in mind that some suppliers offering cheap fees don’t always back that up with a reliable service, so as with all things in life, the cheapest option isn’t necessarily always the best.
- How and when do I get paid? This depends on the Umbrella. Many offer a ‘same day payment’ service, meaning that payments should always be made on the same day funds are received from Project Resource and you should expect cleared funds in your account on the same day payment is processed. Reliable and professional suppliers will run a full payroll service five days a week so there should be no justifiable reason to delay payments as long as the registration formalities have been completed.
- Does using these services mean I will be liable for any additional tax? With both Umbrella and the CIS services, all necessary tax and NI will be deducted at source from every payment processed and then forwarded directly to HM Revenue & Customs. The only way that any additional tax would potentially become due is if you had additional undeclared income – for example rental income from property or from secondary employment which the Umbrella company was unaware of.
- Who do I work for? If you select the Umbrella service, then you are an employee of the Umbrella company and operate under an Overarching Contract of Employment. If you use the CIS service, then you are a self-employed subcontractor engaged via a Contract for services. In either case, neither Project Resource nor their end-client employ you directly.
- What expenses can I claim and how do I claim them? Umbrella employees claim expenses on a weekly basis and these expenses are effectively processed as a tax-free element of their gross pay. The rules of HMRC dictate that expenses must be exclusively, wholly and necessarily incurred during the course of your employment. Most typically they will include things like the cost of travel to and from home and workplace; temporary accommodation necessary in the course of your work; some subsistence claims; purchase of replacement tools. CIS subcontractors claim expenses in a different way. As self-employed individuals, they are required to complete a self-assessment tax return at the end of each tax year and any expenses they have incurred can be claimed through their self-assessment