First-timers Guide to Contracting

Contents:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Message from the Managing Director Summary General advice on starting out New to the UK? Myths and facts about Umbrella Companies What is IR35 Is my contract caught by IR35 What does it mean if I am inside IR35 Which service is best for me Can I claim expenses Payroll and taxation Frequently asked questions Client references Special offers via our Members Services section About ContractorUmbrella Ltd.

Message from the Managing Director Welcome at ContractorUmbrella we believe that your Umbrella Company should do more for you than just process your payments they should be available to answer your queries, deal with your paperwork, liaise with your agency/client and make your life as a contractor as hassle-free as possible. We are totally committed to excellent customer service and we will always go that extra mile for our clients. To this end we have a Customer Service Charter which gives you definitive service levels and a unique money back guarantee for total peace of mind. We realise that where your money is concerned, speed is of the essence! To ensure that you receive your money without delay, ContractorUmbrella processes all recognised contractor payments the same day they are received in our bank account. ContractorUmbrella takes compliancy very seriously. We approached KPMG to review our processes to ensure that ContractorUmbrella can guarantee total peace of mind for all its contractors. As a result we have become the first and currently ONLY Umbrella Company to be confirmed as fully compliant with all relevant HMRC regulations. Please accept this Contractors Guide, with our compliments, which we hope you will find useful and informative. We have tried to make it as simple as possible but some of the legislation is quite involved; for this reason all our clients have a highly trained personal Account Manager who is there to answer any questions. For further information you may like to visit our website at www.contractorumbrella.com. Alternatively you speak to one of our experts on 01206 713 680 or email us at info@contractorumbrella.com. Kind regards

Lisa Keeble
Lisa Keeble Managing Director

Summary
This brief summary is designed to address some of the most common questions asked by our clients. For more detailed information on the subject please refer to the appropriate section of this document, our website at www.contractorumbrella.com or contact us on 01206 713 680. You are paying us to relieve you of the burden of worrying about your taxes and the administration associated with contracting. In order for us to do this most effectively we will need you to: Provide us with a P45, or let us know you do not have one, as soon as you possibly can after registration Provide us with proof of your identity as soon as possible after registration; this is to ensure compliance with money laundering laws. Let us have a contact name and number for your agency/client so that we can arrange all the necessary paperwork and make sure that your transition from permanent employment to contracting is as seamless as possible. Input details of your hours/days worked and your expenses to our online timesheet once a week or once a month. Our highly advanced online systems will then immediately automatically generate an invoice which we will then forward to your agency/client. Leave the rest to us and relax!

Starting Out
This may sound obvious but you will need to sign a contract with your agency/client before you begin working with them. This is a legally binding document which you should read thoroughly before signature. Below is a quick list of points we recommend you check: Start and finish dates Pay rate Payment terms Notice period Standard working hours

If there is anything that you are not happy with in the contract you should let the agency, or client, know before it is signed. You should also make sure that you fully understand what is contained within the contract if you are not sure you should ask your agency/client. If you do not adhere to the terms set out you could, potentially, be sued for breach of contract. If you opt to work through an agency you may be quoted 2 rates one which will apply if you work PAYE through their payroll and another, higher rate if you use an Umbrella Company or Limited Company. The reason for the lower rate is because going PAYE through the agency; they take on all the employer responsibilities including the financial obligations that are involved. If you decide to work through an Umbrella Company, your agency will need their details in order to produce a contract. A good Umbrella Company will contact your agency directly and sort out all the necessary document exchanges without you having to become involved. Your contract will cover what is expected of you whilst you are working on the client site in terms of Health and Safety, fire regulations, dress code etc.

New to the UK?

In order to work in the UK you may need a work permit or a visa; you should check whether or not this is the case before you approach an agency or an Umbrella Company. Follow the link to find out more: http://www.ukvisas.gov.uk/servlet/Front?pagename=OpenMarket/Xceler ate/ShowPage&c=Page&cid=1006977149953 You will also need a National Insurance Number which is a personal number that is used to record an individuals NI contributions and credited contributions. You should apply to the Department of Work and Pensions as soon as you begin work. You will have a face to face interview and you may need to fill in a form as well. You will be required to provide certain documentation for the interview more information can be found here: http://www.dwp.gov.uk/lifeevent/benefits/ni_number.asp#what If you work through an Umbrella Company you must ensure that you have a UK bank account so that payments can be made to you via electronic transfer. This website may be useful: http://www.workgateways.com/working-uk-banking.html You should contact HMRC when you arrive in the UK and you will normally be asked to complete a form P86 which will enable them to determine your residence status for tax purposes. More information regarding tax residency and potential liabilities can be found here: http://www.hmrc.gov.uk/pdfs/ir20.htm#coming An Umbrella Company will pay you through PAYE (Pay As You Earn) which means that, if you have no other source of income, you will have no additional tax liability at the end of each tax year, which runs from April to April.

Myths and Facts about Umbrella Companies

There are many misconceptions about Umbrella Companies and the HMRC rules that surround them. Some of these misconceptions, if believed, could leave you with a large tax bill and possibly, equally large fines from HMRC. The facts that we have listed below can all be supported from information found on HMRCs website for full details please visit our website.

Myth: A special dispensation with HMRC means that one Umbrella Company can allow contractors to claim more expenses that another. Fact: When an accountant processes expenses he will normally need to record the details on an HMRC form called a P11D and also be able to produce receipts to support those expenses. This creates a great deal of work for an Umbrella Company so they apply for a dispensation from HMRC which allows them to process some expenses without having to record them on the P11D or file receipts. However, the dispensation does not apply to you, as an individual, and therefore you must keep receipts for any expense that you claim. It is also not an indication of the expenses that you are entitled to claim to claim an expense you must have first incurred the cost and it must be wholly and exclusively incurred in the performance of the contract. Any amounts quoted on the dispensation are the limits up to which the Umbrella Company can process expense claims without recording them. If the limit shown for accommodation is 95 it does not mean that you can claim this amount each night that you stay away from home if you only spend 65 you can only claim 65. Myth: A daily subsistence allowance is an expense I can claim, without receipts, for being out of the house for more than a certain number of hours a day. Fact: A subsistence payment is, by definition, one that does not have to be supported by receipts. The only subsistence payment permitted by HMRC is 5 per night (10 if abroad) for each night spent away from home during the course of the contract. You must be able to produce receipts for any other costs that you claim as an expense; HMRC requires that you keep your receipts for a period of 5 years.

Myth: I can claim for my breakfast and lunch as an expense. Fact: You can claim actual meal costs whilst you are working at a remote site i.e. away from your normal place of work or when staying away from home overnight but daily claims for meals are not permitted. It is HMRCs belief that you need to eat regardless of whether or not you are at work so the meal costs are not wholly attributable to the contract and can, therefore, not be claimed as an expense. Myth: Some Umbrella Companies charge a high fee but they can guarantee that I will pay less tax. Fact: All Umbrella Companies are controlled by HMRC. The tax you pay is dependent on your personal tax code; National Insurance contributions are a fixed percentage and you can only claim those expenses that HMRC approve. Remember, a dispensation means that the Umbrella Company does not need to see your receipts; it does not mean that you dont have to have them! The only factor that will affect your take home pay is the Umbrella Companys fees. Myth: An online calculator only needs my hourly or daily rate to work out my earnings. Fact: Your net earnings will be affected by your tax code and the expenses that you can legally claim. An online calculator should operate using a standard tax code and a calculator that does not ask for you expenses will assume a figure. This means that the calculation will never be accurate as everyones expenses are different. Myth: An Umbrella Company can pay me a minimum wage and dividends which will earn me more money. Fact: Being paid basic wage and dividends would be more financially beneficial to you. However you can only be paid this way if your contract is IR35 friendly (outside IR35) and you are receiving payment through your own personal Limited Company, over which you have complete financial and administrative control. From 6th April 2007 any involvement from a third party in running a Limited Company (other than accountancy services) would place you under the scope of a Managed Service Company (MSC) If you receive your payments via a third party or your contract fails IR35 (inside IR35) and you are running your own Limited Company, you can only be paid through PAYE

Myth: My contract can be written to fall outside IR35 (or to be IR35 friendly). Fact: This is, in fact, true but if the contract does not accurately reflect your actual working practises it would not be of any benefit in the event of an IR35 investigation. If, for example, the contract states that you can provide a substitute worker but, in reality, you would not be able to you could find yourself in serious trouble. If you are being paid a combination of minimum wage and dividends and HMRC deemed you to fall inside IR35, you would be liable to pay back all the underpaid tax, a penalty and, worst case scenario, you could be prosecuted for tax avoidance. Myth: I can pay part of my salary to my partner to minimise my tax contributions. Fact: New draft legislation has been produced after the success of the Artic Systems case in December 2007. From April 2008 it will be possible to pay part of your income to a partner, but only if there is a genuine commercial arrangement - this would however only be possible through your own Limited Company. For more information on the draft legislation please click here. Myth: I can just switch Umbrella Company when I breach the 24 month rule and continue to claim expenses. Fact: Moving Umbrella Company will not change the situation as the rule applies to your actual place of work rather than the company you use. A workplace is deemed as a temporary site providing your attendance lasts no longer than 24 months. After 24 months a workplace is viewed as a permanent site and, if you spend more than 40% or more of your time at the same site you are no longer able to claim travel between home and that place or accommodation expenses. Myth: I am protected from investigation from HMRC by my Umbrella Company Fact: If you claim expenses fraudulently and HMRC becomes aware of it you will be investigated and you will be liable for any underpayments of tax and any associated penalties. It is worth noting that HMRC do investigate at random and no company can offer you protection against investigation.

Myth: An Umbrella Company can help me minimise my tax contributions Fact: All Umbrella Companies pay through PAYE and your tax contribution is deducted, according to your tax code, each time that you are paid. Your taxable income will be reduced when you claim expenses BUT HMRC dictate what expenses you can claim and not the Umbrella Company and therefore your net earnings (or take home pay) should be the same whichever company you use.

What is IR35?
The IR35 legislation was introduced by HMRC in April 2000 and was intended to combat tax avoidance. It affects all contractors who do not meet HMRCs definition of self-employment and applies to anyone working via an intermediary such as a company or partnership. Since the introduction of the legislation contracts can be tested to confirm whether they fall inside or outside of IR35. These tests are used to determine whether, if it were not for the intermediary, the contractor would be an employee of the end client. The contract must be totally representative of the individuals working practises and would fail the IR35 test if this is not the case. ContractorUmbrella Ltd will be more than happy to conduct a free review of your contract and will confirm your IR35 status within 24 hours please contact info@contractorumbrella.com or 01206 761326.

Is my Contract Caught by IR35?

HMRC have put together a number of simple questions that you can answer which will help to determine your status. If you answer yes to the following then it is likely you will be deemed a disguised employee and will therefore fall inside IR35: Do you have to do the work yourself Can someone tell you at any time what to do, where to carry out the work or when and how to do it Will you work a set amount of hours Can someone move you from task to task Are you paid by the hour, week or month Will you receive overtime pay or bonus payment

If you can answer yes to the following questions it is more likely that your contract will fall outside of IR35: Could you hire someone to do the work or engage helpers at their own expense Do you risk your own money Do you provide the main items of equipment you need to do your job, not just the small tools that many employees provide for themselves Do you agree to do a job for a fixed price regardless of how long the job may take Can you decide what work to do, how and when to do the work and where However, the legislation is a little more complicated than these simple lists would suggest and we would advise that you have your contract professionally evaluated. Please contact info@contractorumbrella.com for a free review.

What does it mean if I am Inside IR35?

IR35 determines the way that you are paid. Before the introduction of the legislation contractors invariably worked through their own Limited Companies and drew dividends from the profits, which do not attract national insurance contributions. However, HMRC determined that, if a contract falls inside IR35, the contractor would be obliged to draw a salary from their company. For contractors who had a Limited Company, but no staff this meant that they were both employer and employee and subsequently both employees and employers national insurance were payable. Therefore, regardless of whether you operate through a Limited Company or an Umbrella Company, if your contract falls inside IR35 you will be liable to pay income tax, employees and employers national insurance. From April 2007 contractors will only be able to receive dividends if they operate their own personal Limited Company. If they receive payment through an intermediary then they can only receive payment via PAYE, which means paying income tax and both employees and employers National Insurance.

Which Service is best for me?

If you are new to contracting, have a short term contract or intend to return to permanent employment within 1 year we would suggest that you use an Umbrella Company. The Umbrella Company is responsible for sending your contributions for tax and national insurance to HMRC and also for providing them with details of your earnings and tax paid at the end of the financial year. Your Umbrella Company should provide you with a payslip each time that you are paid and also a P60 at the end of the year. If you have no other source of income there will be no need for you to complete a self-assessment form. If you are a career contractor or your contract falls outside of IR35 we would recommend that you set up your own Limited Company. You would need to keep records for your invoices raised, funds received, bills paid etc and you would also need to retain a proportion of your income to pay corporation tax as well as for your personal tax obligations. However, if your contract falls outside of IR35 your net earnings would be higher than if you worked through an Umbrella Company as you would be entitled to draw dividends from your company which do not attract national insurance contributions. If you would like to discuss setting up a Limited Company or would like some more information please contact our colleagues at SJD Accountancy Ltd at www.sjdaccountancy.com or on 01442 232700.

Can I Claim Expenses?

Yes! As a flexible employee of ContractorUmbrella, with multiple assignments, you are still able to claim expenses against your contract. We will sign a contract with your agency/client for the provision of services, and this will enable you to continue claiming expenses for up to 24 months at any one site. Unfortunately it is not possible to give you an exhausted list of expenses that you can claim, as this will vary from person to person. However, for something to be an allowable expense the cost must have been incurred wholly and exclusively because of the contract. We have put together a list of the most commonly claimed expenses here: http://www.contractorumbrella.com/expenses.html but, remember, you must be able to be able to prove that the expense was incurred in the

course of your duties and you should also ensure that you keep receipts for a period of 6 years.

Payroll and Taxation

Working through an Umbrella Company, you are paid via PAYE which stands for Pay As You Earn, this means that your tax and national insurance contributions are deducted each time that you are paid. Due to the IR35 legislation that was introduced several years ago you will be liable for employees and employers national insurance contributions as well as income tax. The calculations for these deductions are somewhat complicated but, basically, each is taken as a percentage of your earnings. This means that, despite promises to the contrary, your earnings through one Umbrella Company will be exactly the same as through another the only difference will be the fees that are charged for the service. PAYE means that your tax liability is calculated each time that you are paid throughout the financial year and therefore, if you receive no other income during that period, there will be no additional tax liability at the end of that financial year. If you receive payment via PAYE you can expect to receive a payslip each time that you are paid and this should detail your gross income, tax and employees and employers national insurance deductions, your Umbrella Companys fees, your expenses and your net income i.e. what you will be taking home. The payslip should also contain details of any other deductions such as student loan or CSA. At the end of each financial year, if you are being paid via PAYE at the time, you will receive a P60 which will show your earnings for the year as well as the total tax that you have paid. When you leave an Umbrella Company you should also receive a P45 which should be produced as soon as they receive your final payment. The P45 will show your earnings whilst using their services as well as the tax that you have paid. It will also show the tax code that is currently being used for you; this document acts as a way for HMRC to track your employment. The payroll staff at ContractorUmbrella will be more than happy to answer any queries that you have regarding the PAYE system and if you would like an illustration of your earnings please use our online calculator.

Frequently Asked Questions

i. What benefits does this scheme provide?

As an independent contractor you need to ensure that you are fully compliant with HMRC legislation. ContractorUmbrella makes payment to you through PAYE as is required by legislation announced in the 2006 pre-budget report. You can be secure in the knowledge that your tax will always be deducted at source and therefore you will have no nasty surprises at the end of the tax year. ii. How much does your scheme cost?

Our fees are fixed at just 26.50 per week or 85.00 per month. Fees vary widely and you should be wary of those Umbrella Companies who deduct a percentage of your earnings as what you pay them will increase as your rates increase. The work that the Umbrella Company has to do does not vary according to the rate that the contractor is being paid! iii. How much money can I expect to take home? You can obtain an estimate of your earnings from our online calculator. You may find, that if you compare calculators on Umbrella Company websites, that the figures it provides are different. This is usually because the company has made assumptions as to the expenses you will be likely to claim whilst using their services. Obviously, if the assumption is incorrect, which it invariably will be, then the figure will be totally misleading. You should ensure that you are comparing like with like and the Umbrella Company in question should be able to provide you with a complete breakdown of any figures that they provide you with. The only variable factor in your net pay is the fee charged by the Umbrella Company, all other figures are determined by HMRC regulations. iv. What happens when I register?

When you register you will receive a number of emails from us which will ask you for identification to comply with money laundering and immigration regulations which you must send to us by post before we will be able to release funds to you. You will also receive a demonstration of our systems and comprehensive notes to help you get started.

You will also be contacted by your personal Account Manager who will introduce themselves as your contact within ContractorUmbrella. Your Account Manager is there to answer any queries that you may have or to explain any legislation that you do not understand. v. What happens if I do not have a P45?

Not having a P45 will not necessarily delay your payment provided that we have received proof of identification from you we can pay you using an emergency tax code. Many people think that this means you will pay 20% tax on all your earnings this is not the case that is a basic rate tax code. An emergency tax code means that your tax free pay will be applied as a fixed amount each week or month rather than be applied as a cumulative figure to your cumulative earnings. Once we receive your P45 your historical earnings and tax paid are applied and, assuming your P45 does not list your tax code as an emergency code, your tax will then be calculated on a cumulative basis. If there was a gap between your previous and current contracts you may be entitled to a tax rebate this will be worked out through PAYE and will be paid to you as part of your earnings; it will show on your payslip as a minus figure. vi. When will I be paid?

We will invoice your agency who will then transfer funds to us according to their payment terms. As we run a payroll every single working day; we will make payment to you the same day recognized funds clear in our bank account. For funds to be correctly allocated your agency or client must send us a remittance advice either by post or to remittances@contractorumbrella.com. If the remittance advice is received after our 12pm deadline your payment will be made the following day or alternatively on the day that the remittance is received. If we have not received funds for you, in that particular month, we will make a payment to you on the last working day of the month based on the current minimum wage. Our normal method of payment is BACs transfer (Bank Automated Clearing System) which is an electronic transfer directly into your appointed bank account. If you need funds urgently we can arrange a Same Day payment which guarantees that the money will arrive in your

account on the same day as it leaves ours there is a discounted fee of 12 for this option which will be deducted at source when we make the payment. vii. How will I know when Ive been paid?

Our payroll department will email a payslip to you when your payment has been processed. Your ContractorUmbrella home page will then be updated with a record of the payment. This section will indicate whether or not the invoice has been paid in full. If an invoice has been unpaid your Account Manager will be happy to contact your agency/client for you to determine why this has happened. viii. What happens at the end of my contract? As part of our service, we have put together a shortlist of recruitment agencies that we will, if requested, send your CV onto. More details can be found on our Contract Opportunities page. ix. What if I decide to leave your scheme?

If you no longer need our services you should advise your Account Manager who will then update our records. We will then send your P45 by post as soon as we have received any outstanding payments. You will then be given the option to keep your account open if you are taking a break from contracting or to have it closed if you are returning to permanent employment. x. How do I know youll do what you say youll do?

ContractorUmbrella has a unique customer service charter which means that we give you certain guarantees; if we dont keep our promises you dont pay our fees its as simple as that. Details of the charter can be found on our website: http://www.contractorumbrella.com/charter.html.

Client Testimonials
Our clients come back to us again and again here are just a few of their comments about our service: "I have been using your services since two months now and I could not be more satisfied with their quality. Indeed, I was not expecting such a level of flexibility, professionality and kindness. Every time I've had a problem, it has been solved promptly by my accountant and there has never been a delay of any kinds in delivering your services. Furthermore, when I moved from an employed position to a selfemployed one, I was a little bit concerned about the difficulties involved in such a process, but the clarity and richness of information provided on your website, together with the professionality of my accountant, made it extremely easy. Frankly, I would strongly recommend Contractor Umbrella to anyone who needs this kind of services." Francesco Politi West Drayton I have been using Contractor Umbrella, (CU), for over 6 months during my last two contracts. I have found, much to my surprise in these days of poor customer service, that the CU team deliver exactly what they promise. Payment is fast, charges are very reasonable and the staff are extremely efficient and helpful. I have recommended CU to numerous people and all of them are very happy with the service they receive. I have had one problem in the last six months. This was not the fault of CU, in fact my Account Manager did not have to become involved at all as the problem was between my agency and the client. Despite this my Account Manager harried both other parties to sort out the problem to my satisfaction. This is a fair reflection on Contractor Umbrella and its staff. They do that little bit more to make sure that you are Happy with the service

Karl Wainwright Lancashire "Amazing customer service - ALWAYS live up to their promise of answering the phones within 3 rings, and always a human being answers the phone, and what's more 99 percent of the time its someone who knows what they are talking about, and if not then its not long before someone gets in touch, who DOES know the answer. Emails are equally as swift on reply, in fact just the other day I had two pay slips sent out to me, and I didn't understand why, I emailed back, and copied my Account Manager, and got an email back within hours from BOTH of them, and the one from my Account Manager, clearly showed that he had been in touch with the originator of the email. Wonderful these days to have such personal, swift and human contact with a company! Now if only you could sort me out with a new contract John Denley Gloucestershire "I started using ContractorUmbrella to handle all my timesheet recording, invoicing, tax issues etc last October after many years trying to manage it on my own as a sole company director, and getting in a right mess. Now I wish I had used them when I first started contracting way back in 1996. For very little cost I have the minimum amount of paperwork to deal with, its all online, all the questions and problems I have had with agencies, HMRC, fast-track payment, even one-off contract work, has been dealt with easily and in language I can understand, and invariably in a single, speedy email reply. I have my own Account Manager, and I feel like she is my own, even though she is probably handling dozens of accounts, because everything is dealt with on a personal level, and I am made to feel that my questions etc are important to her. As far as I am concerned, a great company with a thoroughly modern professional ethic with a personal touch! What more can I say, I am more than delighted and I trust them 100 percent to manage my affairs in my best interest." Reg Bierne West Lothian

As a member of ContractorUmbrella you also receive access to these

special offers through our Members Services section: Pension Scheme Access to our market leading tax efficient pension scheme. Contract Opportunities ContractorUmbrella can help you find that all
important next contract!

Wealth Management - Specialist independent financial advice on income

protection, life and critical illness cover and investments.

Contractor Mortgages Getting a mortgage as a contractor doesnt have to

be difficult!

Childcare Vouchers Benefit from both tax and NI relief with our Childcare
voucher scheme.

Private Medical Cover - 25% discount on BUPA private medical cover. Travel Insurance - 20% off BUPA Travel cover. Contractor Accommodation - A one-stop-shop for all your accommodation
needs as a contractor.

Give As You Earn - Reduce your tax liability by donating to the charity of your
choice.

Foreign Currency Exchange Maximise the return on your foreign currency PI Insurance - Does your contract require Professional Indemnity insurance?
If so, you can receive a no obligation instant quote & pay monthly interest-free!

If you have any further questions about using an Umbrella Company, please do not hesitate to contact a member of our team on 01206 713681 or email us at info@contractorumbrella.com.
In a nut Shell, ContractorUmbrella know their stuff. You won't find better. - UmbrellaSupermarket

About ContractorUmbrella Ltd

ContractorUmbrella is one of the largest and most respected Umbrella Companies in the UK. Established in 2002, we are now recognised as being a market leader with several thousand satisfied clients. ContractorUmbrella is part of the SJD Group of accountancy companies, which includes SJD Accountancy who are the chosen firm to over 8,000 contractors working through their own Limited Company, winner of the prestigious Accountancy Age Awards for Excellence and are the National firm of Accountants recommended by the Professional Contractors Group. ContractorUmbrella is the ONLY Umbrella Company in the UK which has held professional accreditations with the three leading industry bodies - KPMG, Professional Passport AND APSCo. ContractorUmbrella featured 14th in the FastTrack 100 league table of Britains fastest growing companies in 2007. Visit here for more information. ContractorUmbrella was awarded the prestigious Investors in People accreditation in 2006. Key Features Unlike other Umbrella Companies we do not charge a percentage of your income, our fee remains the same regardless of your earnings. No hidden joining or leaving charges, no minimum commitment and no fees charged in-between contracts. ContractorUmbrella Ltd is an alliance partner of Contractor UK, Contractor Money, Freelance UK, Freelancers in the UK and associate members of the Professional Contractors Group the UKs largest trade body for contractors. Money-back Customer Service Guarantee. Web-based portal giving 24/7 access for both timesheets and expenses submission. Personal Account Manager for every client.