Affinity is an umbrella company that prides itself on offering the most cost effective solution on the market. Founded on a set of core beliefs, Affinity can help those looking for a simple way to cut down on their administration, tax and invoicing problems.

  • Same day payments
  • Free Insurance Cover
  • Payslips
Payments Benefits Deductions
Description Amount Description Amount Description Amount
Basic Pay £0.00 Insurance i← CLICK FOR MORE INFO £9.03 Affinity Payroll Margin £20.00
Total Payments £0.00 Childcare i← CLICK FOR MORE INFO £0.00 Income Tax £0.00
Total Benefits £9.03 National Insurance £-21.51
Marriage Allowance i← CLICK FOR MORE INFO £0.00 Pension £-5.92
Total Deductions £-7.43
Tax Code Pay Frequency Tax Basis Days Worked Net Pay Net Pay inc Benefits %
1185L W1/M1 £7.43 £16.46 %
Payments
Description Amount
Basic Pay £0.00
Total Payments £0.00
Benefits
Description Amount
Insurance i← CLICK FOR MORE INFO £9.03
Childcare i← CLICK FOR MORE INFO £0.00
Total Benefits £9.03
Marriage Allowance i← CLICK FOR MORE INFO £0.00
Deductions
Description Amount
Affinity Payroll Margin £20.00
Income Tax £0.00
National Insurance £-21.51
Pension £-5.92
Total Deductions £-7.43
Tax Code Pay Frequency
1185L
Tax Basis Days Worked
W1/M1
Net Pay Net Pay inc Benefits %
£7.43 £16.46 %

The calculations shown above are based on a series of generic assumptions.

For more information about the calculations and the benefits included from Affinity Payroll click here.

The low cost way to process your payroll

For many contractors, payroll is a headache they could rather do without. That's where Affinity Payroll comes in. As experts in both umbrella and Limited Company payroll, we're used to dealing with high volumes of payments so that you don't have to.

Our low cost model means you'll take home more each week, while our customer service team is just an email away.

Low cost doesn't have to mean low quality. With Affinity Payroll, you'll get same day payments, insurance cover and payslips, meaning you'll have all the basics covered within your low cost fee.

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The calculations shown on your illustration are based on a series of generic assumptions.

  • Work 52 weeks per full tax year (4.3 weeks per month)
  • 18/19 tax and NIC rates
  • Tax code 1185L
  • You don’t have earnings from other sources this tax year
  • Margin as outlined within the application
  • Where selected, the minimum auto-enrolment pension contribution
  • Where instructed and applicable, we have taken into consideration a proportion of your spouse or civil partners personal allowance
  • Where applicable we have included the likely amount of credit available from HMRC to assist with approved childcare

The benefits included from Affinity Payroll:

  • Same day payments
  • Free Insurance Cover
  • Payslips
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  • How contractors can benefit from employee benefit schemes?

    As a self-employed contractor you could be forgiven that the world of workplace benefits is firmly off the market, but you couldn’t be further from the truth. Yes your end clients benefits scheme will probably be off the table, but by working through an umbrella company you could get access to a host of employee benefits that not only make contracting easier but actually give back some of the fees you pay to the umbrella every week.

    Employee benefits come in many shapes and sizes but they often include:

    • Public Liability Insurance Cover (about £3.84 per week)
    • Professional Indemnity Insurance Cover (about £5.19 per week)
    • Perkbox Rewards (about £6.09 per week)
    • Cycle to work schemes

    If you’re paying an umbrella company £25 per week, then it’s important to offset that cost against some of the benefits you’d otherwise need to pay for out of your own pocket.

    Read on for a breakdown of these benefits and how they can financially benefit the contractors that receive them.

    Public Liability Cover – on average £200 per annum

    As a contractor working through a Limited Company or as a self-employed worker, in order to step on site and fulfil your contract you are often required to provide your client with proof of your public liability insurance.

    Public liability insurance protects, you, your client and their end customer in the event that you cause injury or loss to someone in the course of performing your role (though not through your actual resulting work). Say for example you’re in IT and you’re building a piece of software. In the course of making this software, you lose the memory stick that houses the data on it. In this event it’s your public liability insurance that foots the bill for the loss caused to your client rather than you, meaning that a blip in an otherwise perfect career won’t cost you your house.

    Public liability insurance isn’t compulsory in the UK, but it is often a minimum requirement to engage with a client. While your work might take nine months to complete and the end result would be covered under your mandatory professional indemnity insurance cover, any mishap you encounter in the course of the nine months you take to reach the end result won’t be.

    Professional Indemnity Insurance – on average £270 per annum

    As mentioned above, unlike public liability insurance, professional indemnity insurance is a legal requirement. As an expert, you’d expect that every piece of work you do is top notch but sometimes things can go wrong and in the event that this is a result of your work, this is the insurance that will cover the bill.

    Say for example you’re a railway engineer, and in the course of your inspections you miss a faulty signal, which in turn causes an accident. As a contractor you could be financially liable for the implications of that accident and as such unless you have professional indemnity insurance you could end up footing the bill.

    Of course, no one wants to ever make a claim on their insurance but much like taking out car insurance, as a responsible contractor you need to ensure should the worst happen, you’re covered.

    Perkbox (and other employee perk schemes) – a minimum of £317 per annum

    Perkbox is the UK’s leading employee reward scheme and it’s becoming increasingly popular amongst high end umbrellas that want to give a little more back to their loyal customers.

    The perks are pretty straight forward, with 90% consisting of money off vouchers at leading retailers for example:

    • Exclusive Odeon, London Eye & National Attraction Offers
    • 5% off at Ikea
    • 8% off Just Eat
    • 8% off at M&S
    • 10% off at Debenhams
    • 10% off at Charles Tyrwhitt
    • 15% off at New Look

    However there are a few big winners that you can benefit from as soon as you join your umbrella company including:

    • 20% off EE monthly phone bills (worth £96)
    • Free Mobile Phone insurance (worth £179)
    • 12 Free Coffees from Café Nero (worth £42)

    Ignoring the plethora of other discounts on offer, these three offers alone will net you a benefit of £6.09 per week.

    Employee benefits can add up fast

    If you combine both contractor insurances and perkbox, the average contractor on £50,000 per annum can expect to benefit to the tune of around £15 per week. Compare that to an umbrella fee of £25 per week and net weekly cost is actually just £10.

    For more information on umbrella companies, the benefits they offer and how these will affect your net take home after tax, compare umbrella companies online today.

     

  • Insurance For Contractors

    Insurance for contractors is of paramount importance, covering you against legal costs, unexpected damage and even cyber attacks. There are several kinds of contractor insurance available, so it’s a smart move to get familiar before choosing the right one for you.

    That’s where Umbrella Broker can help, with our review of the different types of cover available to contractors…

     

    Public liability insurance

    There are two kinds of liability insurance available for contractors. The first is public liability insurance, which covers any risk to the public and the resulting claims. This could be anything from your postman slipping when delivering to your site, falling debris from scaffolding causing injury or just somebody tripping over a loose cable while passing.

    It also includes your clients when they visit your premises, as well as any damage that may be caused by you or your employees when visiting a client’s site. Let’s say you knock over something expensive while you’re there – they won’t think twice about claiming for that damage.

    In short, public liability insurance is essential for anyone who deals with customers or clients face to face. The cost will depend on a number of factors, such as:

    • Your industry
    • How many employees and clients you have
    • Your location
    • Previous claims

     

    Employers’ liability insurance

    The other type of cover is employers’ liability insurance, which is a legal requirement for contractors with one or more employees. Here’s the difference: employers’ liability insurance protects you against costs from compensation should employees become injured or unwell from work.

    As soon as you take on any employees, you need to be covered for at least £5 million by employers’ liability insurance. Insurance must be provided by an authorised insurer and it includes any casual workers or short-term contracts. Fail to do so and you could face a fine of up to £2,500 per uninsured day.

     

    Professional indemnity insurance

    With professional indemnity insurance, you’re protected from any claims against your services, products or advice. So, if a client claims that your work is substandard or incomplete, your insurance will cover the cost of the legal defence and any expenses as well as any compensation should they succeed in claiming against you.

    Professional indemnity insurance is required for several professions – such as management consultancy, business consultancy and IT contractors – in order to secure contracts. Basically, clients want to know you’re covered, so they know they’re covered too.

    Even if you’re not legally obliged to take out professional indemnity insurance, it’s always better to be safe than sorry. Legal fees and compensation can stack up and cost thousands just for one claim. They can be crippling if you have to fork out yourself, while the cost of insurance is completely manageable.

     

    Personal accident insurance

    As a contractor, there’s no sick pay to tide you by if a serious injury stops you working. Instead, you’ll be short of money or reliant on your own savings. That’s where personal accident insurance comes in. When you’re covered by personal accident insurance, you will receive an ongoing payment to cover the loss in profits while you’re out of work, or a lump sum if you suffer a permanent disability.

    Personal accident insurance can also be taken out for key employees. Again, if one of your employees is injured, it’s you that will need to cover their wage or sick pay. Statutory Sick Pay is £92.05 per week for up to 28 weeks and can no longer be reclaimed from the government. That’s over £350 per month, which could cause serious problems for some contractors if they need to cover it themselves.

    As well as temporary injuries, personal accident insurance can be taken out to cover death. A lump sum will be paid out for people who are covered by the policy. This could help relatives of the contractor, or the contractor themselves if one of their employees can no longer work.

     

    Contents insurance

    Insurance for your office contents protects you in case any office equipment or furniture is lost, stolen or damaged. This could be computers and office phones, furniture like desks and chairs or even important documents that are stored on your premises.

    You can even insure portable items, which aren’t stored permanently in your office. Fortunately, with the right flexible policy, you can get insurance for remote working too – so yourself or any employees will be insured when working at home.

     

    Buildings insurance

    Buildings insurance is useful for contractors who own their office. Unlike contents insurance, it covers fire and water damage to the office itself. Without it, a fire or leak could set you back thousands. However, it’s important to have contents insurance alongside buildings insurance, as no contents are covered by the latter.

     

    Cyber insurance

    Most contractors are reliant on digital tools in some way or another – whether it’s for communication, payment or just data storage. Needless to say, any data breaches, hacks or information loss can set you back and cost you big. That’s where cyber insurance comes in.

    Also known as cyber risk insurance, it covers you for the recovery process after any cyber damage or loss. This could include investigating what went wrong, notifying and compensating clients, and reimbursing monetary losses.

     

    Which type is right for you?

    Contractors’ insurance isn’t a case of “either-or”. Instead, it’s about deciding where the risk lies and which plans are required to cover you. Professional Indemnity and Public Liability are the two most common insurance types held by contractors – in addition to Employers’ Liability insurance because it’s required by law.

    However, Professional Indemnity insurance is required by some regulators and essential for members of some professional bodies. Because of this, both Professional Indemnity and Employers’ Liability insurance are provided as standard by umbrella companies.

    The other types of insurance – such as cover for contents, cyber attacks or personal accidents – are optional, but will provide that extra peace of mind.

     

    Make things easier

    If you’re looking for peace of mind with contracting work, Umbrella Broker can help. We help contractors find the right umbrella company and accountant, so there’s no need to worry about payroll and taxes.

    Need more information? Feel free to contact us today.

     

  • Do Umbrella Companies Have a Pension Scheme?

    Umbrella Company Pension Schemes – What You Need to Know

    Pension schemes help employees put money aside for retirement directly from their wage. The problem for self-employed professionals is that they need to manage this themselves, either by setting up a pension scheme or saving money from their income.

    Fortunately, umbrella companies class contractors as employees, giving them all the benefits of employment. That includes a pension scheme, which now requires contribution from the umbrella company too. Let’s take a closer look at the statutory pension schemes available through umbrella companies.

    Auto-enrolment pensions

    In 2012, the UK Government decided that workers weren’t saving enough for their retirement. People were relying too much on the State Pension, which had not received adequate funding to match the continuing rise in life expectancy and an ageing population.

    To combat this, they introduced automatic enrolment. The new system, rolled out from 2012 to 2018, requires employers to automatically enrol eligible employees onto a workplace pension scheme. Employers are also responsible for deducting contributions from their pre-tax income and making a minimum statutory contribution to the employee’s savings.

    In October 2012, this minimum contribution was set to 1 percent for employees, which was matched by employers, rising in 2018:

    • October 2012 to 5th April 2018: employers 1%, employees 1%
    • 6th April 2018 to 5th April 2019: employers 2%, employees 3%
    • 6th April 2019 onwards: employers 3%, employees 5%

    However for anyone that doesn’t want to contribute to a pension once you’re enrolled you can still opt out.

    Umbrella company pension scheme

    Working through an umbrella company, contractors are classed as an employee. That means, yes, you are automatically enrolled onto the umbrella company’s pension scheme as long as you meet the following criteria:

    • Your work is primarily UK-based
    • You earn more than £10,000 per year
    • You’re between 22 and the state pension age.

    Until 5th April 2019, 3% of your pre-tax salary will go directly into a pension fund, with the umbrella company contributing a further 2%. From 6th April 2019, 5% of your pre-tax salary will go into the same pension fund, with your umbrella company contributing a further 3%.

    The benefits of an umbrella company pension

    Some contractors may worry that this will eat away at their wages. Don’t. Pension contributions are made before your wages are taxed. That means anything that goes from your wage into your pension fund is tax-free rather than being taxed at 20% or even 40%. So, instead of receiving 60% of your income, you receive 100% via a pension fund.

    Let’s say you earn over £46,351 per year, which puts you in the higher rate band of income tax. Anything you earn beyond that £46,351 per year (roughly £3,863 per month) is taxed at a rate of 40%. You get just £60 for every £100 of income. Why not put the full £100 straight into the pension fund instead?

    That’s why many people, especially those in the higher rate band of income tax, choose to put more than the minimum into their pension fund. And this is entirely possible. Contractors can contribute up to £40,000 to their pension scheme per year, comprising tax-free income and employer contributions. Currently, there is a lifetime allowance of £1,030,000 which can be contributed before incurring any tax.

    Using your funds

    With the increased earnings of contracting, it’s common for contractors to retire early. Alternatively, you might simply want to get some of the money out for a holiday, new car or home improvement. The good news is: you don’t have to wait until the state pension age to access the pension funds you’ve built up through your umbrella company pension.

    Once you’re 55 or over, you can access up to 25% of your pension pot as a tax-free lump sum. Anything beyond the 25% will be taxed as an addition to the rest of your income that tax year – either 20% over £11,850, 40% over £46,351 or £45% over £150,000, as things currently stand. That’s why most people choose to take their pension as regular income once they have retired, to minimise the amount of tax paid.

    What about limited companies?

    Contractors who operate as a limited company can still benefit from the tax relief of a pension scheme. However, as with most things relating to limited companies, this requires a lot more effort on their part. Firstly, they have to get the right balance between salary and dividend payments to increase the limit on their pension contributions.

    Because employer contributions, such as pensions, count as a business expense, they are subject to tax relief. So, when you contribute to your pension scheme, as a director, the company could save money in corporation tax.

    However, this has added complications because it needs to be fully compliant as an allowable expense. Any other employees, for example, should be given comparable packages to prove to HMRC that it is a genuine business expense.

    On top of all that, using a limited company pension scheme means setting up and paying into the pension fund yourself. Along with all the other administrative work for limited company owners, it’s definitely worth seeking advice and assistant from a trusted accountant.

    Get the right assistance

    Whether you’re looking to compare umbrella companies or find the right accountant, you can make the right choice with Umbrella Broker. Our online comparison tool lets you assess multiple companies in a matter of minutes. It couldn’t be easier to take the hassle out of contracting. Contact us today for more information.

  • What You Can Claim on Contractor Expenses?

    Contractor Expenses Explained

    When you’re working as a contractor, there are certain expenses you’ll incur, such as travel, equipment or even entertaining clients. Unlike working for an employer, you won’t have someone there to cover the bill for you, so you’ll be faced with two options as to how to treat those expenses moving forward.

    As a contractor you can either offset some of the expenses against your tax bill, or recover the costs from your end client. But beware, both options aren’t always possible. Read on as Umbrella Broker explains the ins and outs of contractor expenses.

    What expenses can I claim?

    By definition, business expenses are costs that you’ve incurred purely for business purposes. While some are more common, like travel costs, others are more specific and can easily be missed. When considering how to treat your expenses, it’s important to understand the difference between claimable and offsettable business expenses.

    Claimable expenses are costs you can get back from the client. On the other hand, offsettable expenses can be offset against tax. While you used to be able to do both through an umbrella company, after a series of clamp downs, most contractors are now unable to offset any expenses while working through an umbrella.

    If you have a lot of offsettable expenses, it’s worth considering working through your own Limited Company. If your expenses will be low or can be claimed back from your end clients, then an umbrella company is a good option to choose.

    How does IR35 affect expenses?

    An important thing to note is that you can’t offset expenses through either a limited company or an umbrella if you’re working inside IR35 (most public sector workers). Limited companies working outside IR35 can still benefit from offsetting expenses, while contractors inside IR35 can only claim administration expenses, some work-related subscriptions and their pension contributions.

    This means that for those caught by IR35, the hassle of administering a limited company for little taxable benefit is too great, with the majority opting to use an umbrella instead.

    Expenses and tax

    If you’re simply claiming back an expense from your client then you will be reimbursed in full for your expense and will incur no tax on the payment.

    However, offsetting expenses against tax is not as simple. In essence, your expenses are deducted from your income, to find your true income level. So, if you earned £5,000 in a month on your contract and spent a total of £1,000 on business expenses, you would pay tax on the £4,000 actual income you earned with £1,000 tax-free. Having this amount of your earnings without tax essentially repays you for the money you spent on the expenses in the first place.

    This is just a general example, however, and doesn’t take into account the complexities of PAYE taxation or dividend payments. It’s always best to seek professional assistance from an accountant when you’re dealing with taxation and expenses.

    With that in mind, this rest of this post will focus on offsettable expenses. Here are the different things you can claim for as an offsettable business expense…

    • Travelling by car

    During a contract away from their usual place of work, contractors can claim for travel costs. They do so at a rate of 45p per mile up to 10,000 miles in a fiscal year. That’s the tax year, which runs from 6th April to 5th April the following year. After you’ve travelled 10,000 miles, you can only claim 25p per mile.

    The mileage allowance covers fuel and vehicle running costs. But you can also claim for parking costs and any congestion charges or toll roads. Contractors can also claim tax back on 5p per mile if they are a passenger in a car. However, it’s important to note that you can’t claim for speeding or parking fines.

    • Other transport

    If you’re traveling by motorcycle, you can claim back tax at a rate of 24p per mile. Travelling by bicycle, on the other hand, can be claimed for at a rate of 20p per mile. Contractors can claim back the tax for the cost of their journey on public transport too. To do so, you’ll need to keep your receipts or tickets with prices on.

    You can claim for any mode of transport, whether it’s bus, train or plane, but it needs to be the most suitable, cost-effective mode of transport for your journey. For trains and planes especially, tickets should be economy class and booked in advance at the best rate, where possible.

    • Accommodation

    If you need to stay overnight for one or several nights to work on a contract, you can claim back the cost of the hotel as an expense. Again, this should be booked in advance to get the best rate, where possible.

    While there is no set limit, any accommodation costs claimed as an expense must be considered ‘reasonable’. So, spending hundreds of pounds per night when cheaper alternatives are available a similar distance away from your place of work could be rejected for being an unreasonable expense.

    • Meals

    It may surprise you to know that meals can be claimed as expenses. When you’re working away at a remote site or staying overnight for work, you can claim back the cost of breakfast or an evening meal where it’s ‘reasonable’.

    Make sure to keep any receipts, as you will need to claim meal costs individually. You can’t claim back the cost of meals for the whole day. Reasonable meal costs can also be claimed back when entertaining clients. So, you can get back the VAT when you take potential clients for lunch.

    • Clothing

    If you wear your normal clothes to work, you can’t claim anything back as an expense. This includes things like suits, which you might not consider ‘normal clothes’ because you don’t wear them at home.

    The distinction comes with clothes that are essential to the work you’re carrying out. This includes branded uniforms with a company logo on or protective clothing like hard hats or high visibility items.

    • Office costs

    Renting and running an office is one of the biggest expenses for some contractors. Fortunately, your rent, business rates, energy bills and insurance can all be claimed as expenses. Other office equipment can be claimed too, as long as it is something that will be used for less than 2 years.

    So, while permanent furniture or computers cannot be claimed, you can claim expenses for the following:

    • Phone bills
    • Internet bills
    • Postage costs
    • Stationery and printer ink
    • Software being used for less than 2 years or software that is renewed regularly over periods shorter than 2 years
    • Training

    In some cases, you may need to complete training to improve the standard of work on a particular contract. To claim this back as an expense, it must be relevant to the contract you’re working on.

    Quick and easy umbrella comparison

    With Umbrella Broker, you can compare umbrella companies with no hassle at all. Simply create an account and you’ll be able to weigh up the best umbrella provider for you and get the level of service you deserve. Get in touch today for more information.

  • Saving Money With The Marriage Allowance

    Marriage joins two people together in the eyes of the law. And with this comes several benefits, including the Marriage Allowance for tax. But who qualifies? And how much is it worth? Read on as Umbrella Broker explores the ins and outs of the marriage allowance for contractors.

    What is the Marriage Allowance?

    First introduced in April 2015, the Marriage Allowance is a tax benefit for married couples in the UK. In 2018, it has been extended to include couples in civil partnership too. Rather being an allowance in itself for married couples or civil partners, the Marriage Allowance enables you to transfer part of your tax-free personal allowance to your partner – and vice versa.

    The personal allowance, currently at £11,850, is exempt from taxation for all UK individuals. But in some cases, you or your partner may earn less than this amount. With the Marriage Allowance, the lower earner in the marriage or civil partnership can transfer up to 10% of their tax-free income allowance to the higher earner.

    From £11,850, that means you can transfer up to £1,190. At the 20% tax rate for £11,851 to £46,350, that’s up to £238 per year taken off your tax bill and added to your net income.

     

    Contractor Marriage Allowance

    Good news – contractors are eligible for the Marriage Allowance as long as they meet the criteria for other employees:

    • You need to be married or in a civil partnership
    • Your partner must earn less than £11,850 per year
    • You must be a basic rate taxpayer. In short, this means your annual pre-tax income must be between £11,851 and £46,350.

    Contractors earning above £46,350 are categorized as higher rate taxpayers. Unfortunately, that means they aren’t eligible for the Marriage Allowance. The same is true for additional rate taxpayers, who are earning over £150,000 before tax.

    Additionally, the 10% your partner transfers cannot take their total earnings to over the £11,850 tax-free allowance. So, if they have earned £11,000 and transfer you 10% of their allowance – which would be £1,190 – it would take their total earnings to £12,190. In this case, they would be taxed on the £340 which exceeds the tax-free allowance.

     

    Contractors applying for the Marriage Allowance

    If you and your partner are eligible for the marriage allowance, you won’t be automatically enrolled. Instead, the lower-earning partner needs to apply for the allowance. In fact, millions of couples don’t claim the allowance despite being eligible.

    To complete the applications, you will require the following…

     

    • National Insurance numbers for both people
    • Proof of identity for both people – such as a passport, driving licence, P60, last 3 payslips or the last 4 digits of a bank account which is used to receive child benefits, tax credits or state pension payments.

    If you have this information and you’re eligible, the application should be both quick and straightforward. Best of all, applications can be made online.

    Another thing that’s important to note is what to do when your circumstances change. HMRC will continue to transfer the tax-free allowance between your partner’s allowance and yours. If you get divorced, dissolve your civil partnership or your partner dies, HMRC needs to know immediately or you will be forced to pay back any falsely claimed allowances at a later date.

     

    Receiving the Marriage Allowance

    To transfer the allowance, HMRC generally changes tax code for both people. This automatically increases your tax-free allowance and reduces that of your partner. Alternatively, for self-assessment tax returns, the changed tax code will reduce your self-assessment bill.

    After applying, it can take up to 2 months for the allowance transfer to take place. Don’t worry though, claims will be backdated to the start of the current tax year automatically. Because the Marriage Allowance was introduced in 2015, claims can also be backdated for previous years.

    From 2015-16, the first year of the Marriage Allowance, it was worth £212. It rose to £220 in 2016-17, and to £230 in 2017-18. So, if you ask HMRC to backdate your Marriage Allowance claim, you could be in for an extra £662 on top of this year’s allowance of £238.

     

    Let an umbrella company help

    Like any tax matters, the Marriage Allowance is simpler through an umbrella company. Rather than processing it as part of your self-assessment returns, your extra allowance will be processed by the umbrella company before sending you a net amount as take-home pay.

    It’s contracting without the hassle. And with Umbrella Broker, you can find the right umbrella company for you in minutes. Contact us today for more information.

  • What Childcare Vouchers Can You Claim as a Contractor?

    Contractor Childcare Vouchers vs Tax-Free Childcare

    It’s not easy balancing contracting work with childcare. You can either cut back on work by looking after your children or lose some of your earnings paying out for childcare.

    Childcare vouchers offer a practical solution, giving people tax relief on the money they put towards childcare. However, from October 2018, they will no longer be available to new applicants. Instead, people can claim through the Tax-Free Childcare scheme.

    So, how does it all work? Can contractors claim? And what is the best option for you? Read on for Umbrella Broker’s guide to contractor childcare vouchers and tax-free childcare.

    What are childcare vouchers?

    The Childcare Voucher scheme allows employees to take some of their wages as childcare vouchers, rather than money directly into their bank account. Why? By doing so, this part of their wage is exempt from tax and national insurance.

    Employees can take up to £55 a week of their wages as childcare vouchers. This can be used to pay for approved childcare costs, including:

    • Registered childminders, nurseries or clubs
    • Childminders through an Ofsted-registered agency
    • A registered school
    • A care worker through a registered home care agency

    Depending on the specific scheme, these vouchers may also be used on childcare assistance provided by your employer – such as an on-site staff nursery. Needless to say, these vouchers can only be used for your own child or stepchild who lives with you.

    £55 per week amounts to £243 a month and over £2,800 over the course of a year. Considering exemptions for both tax (20%) and national insurance (13.8%), that provides a net benefit of over £1,000 for basic rate tax payers.

    The amount you can claim is reduced slightly for higher and additional rate taxpayers:

    • Higher rate: £28 per week, £124 per month and £1484 per year
    • Additional rate: £22 per week, £97 per month and £1166 per year

    Contractor childcare vouchers

    Because they’re not classed as an employee, self-employed contractors cannot claim childcare vouchers. There are ways for contractors to get the benefits of tax-free childcare vouchers, however. Firstly, through their own limited company. Contractors operating as a limited company can pay childcare providers directly, which will reduce their corporation tax bill.

    However, the easiest way is through a contracting umbrella. Because they add contractors as an employee, you can access the benefits of childcare vouchers with no extra admin on your part. The value of childcare vouchers is simply subtracted from your wage before it’s processed through pay-as-you-earn tax.

    Things are changing

    From 4th October 2018, new applicants can no longer join childcare voucher schemes. People already enrolled on a childcare vouchers scheme can continue to use it as long as they stay with the same employer and the employer continues to run the scheme.

    Instead of childcare vouchers, new applications will need to go through Tax-Free Childcare to gain tax exemption on some childcare costs. Tax-Free Childcare works by reducing the cost of childcare to 80%. The government pays £2 for every £8 you pay towards childcare.

    Essentially, for £300 worth of nursery costs, you would pay £240 and the government would contribute the remaining £60. So, the childcare costs are effectively tax-free for parents. This is available to the value of £500 every three months, per child.

    Who is eligible for Tax-Free Childcare?

    Tax-Free Childcare is meant to reduce the financial burden of childcare for working parents. It covers all the same registered childcare services as childcare vouchers but is only available for children aged 11 or under – or 16 and under with a disability.

    You’re eligible if you and your partner (if you have one) are in work and earning at least the minimum wage for 16 hours a week or more. However, you won’t be eligible if either you or your partner has a taxable income over £100,000.

    The main benefit with Tax-Free Childcare is that self-employed workers can use the system. Rather than employers deducting costs before processing wages, the childcare costs are processed through an online account, where the government contributes their 20% of the cost.

    Comparing the two

    As mentioned, existing users of childcare vouchers can continue to use them as long as their employer continues to use the scheme. However, once they start using Tax-Free Childcare, their childcare vouchers will be stopped. So, which is better for you?

    Because childcare vouchers make your earnings exempt from both tax and national insurance – rather than just redeeming the tax value like Tax-Free Childcare – they are the best option for most parents. However, the limits on how much you can spend using childcare vouchers makes them unsuitable for parents with several children.

    Tax-Free Childcare is the better option for any single parents spending over £4,650 on registered childcare or working couples spending over £9,300.

    30 hours free

    Another government scheme that goes hand in hand with Tax-Free Childcare is 30 Hours Free Childcare. This does what it says on the tin – gives 30 hours of free childcare to parents who are eligible. Fortunately, the eligibility criteria are the same as for the Tax-Free Childcare scheme.

    While all parents get 15 hours of free childcare for 3-4-year-old pre-school children, this scheme provides double that to those who are working over 16 hours a week.

    Make contracting easier

    Childcare is just one of the many considerations for contractors. On top of that, you have invoicing, tax and expenses to worry about, along with your actual work. Umbrella companies make things easier, processing your income and paying you a simple net sum each month

    Umbrella Broker can help you find the right umbrella company. Our online comparison tool helps you compare different providers in a matter of minutes. Any questions? Contact our team who will be happy to assist.

  • What Exactly is an Umbrella Company?

    Contracting is an exciting career change for professionals in all kinds of sectors. It provides more income, added freedom and extra flexibility in the way you work. Rather than providing your services to an employer, you sell them directly to a client who pays you much like another company.

    However, unlike another company, you don’t have to use the same invoicing and payment route. Contractors can choose between setting up a limited company and working through an umbrella company. Unlike the sometimes-overwhelming step of setting up a limited company, an umbrella company provides a simple and straightforward way to start your contracting career.

    Want to know more? Read on as Umbrella Broker looks at how umbrella companies work, how they compare to the alternatives and whether a contractor umbrella company is right for you.

    The basics of umbrella companies

    It’s understandable that some people are unfamiliar with umbrella companies. If you’re not a contractor, they’re not really something you will encounter. However, they’re actually one of the most common options for contractors because of how easy they make it to work for yourself.

    While limited companies need to be set up and run by contractors, umbrella companies simply hire contractors as pay-as-you-earn (PAYE) employees. You are added to the payroll of the umbrella company and pay a fee to them. For this fee, they take care of all your administrative and financial duties – like a permanent employer.

    They will provide statutory rights like insurance and paid leave. They’re also responsible for paying your taxes, so any money you receive is your take home pay. However, unlike a permanent employer, your umbrella company won’t set you work. You can take on contracts as normal, focus on work and leave the administrative work to them.

    How do umbrella companies work?

    When you’re employed by an umbrella company, you simply submit your timesheet to them after each contract. They will then invoice your client and chase payments, like a middle man working on your behalf. Once payment is received, the umbrella company will deduct and pay the right amount of tax and national insurance contributions (NICs) from your wage and transfer you the final sum.

    Should I use an umbrella company?

    Umbrella companies aren’t for everyone. The alternative – setting up your own limited company – provides higher income as a trade-off for more administrative work. With that in mind, umbrella companies are the ideal solution for contractors that don’t have the time to run their own business while also completing contract work.

    Unlike a limited company, there’s no need to keep track of different payments, create and send invoices or calculate your own tax and NICs. It also removes the burden of company accounts and VAT returns, so you have complete peace of mind and can focus on the job at hand for each contract you work on.

    You don’t have to kick back and relax though. The time and energy you save can be put towards more work or other projects. You could even spend the time on training to improve your skills and secure higher-paid contracts in future.

    Umbrella companies are also useful for people who are new to contracting. Many professionals use them as a transition between regular employment and running their own business. As you become more experienced and establish a bigger client network, it’s possible to switch to a limited company at a later date.

    It’s also the ideal route if you only plan to work in contracting for a temporary period as it’s easy to move in and out of an umbrella company – as opposed to setting up and dissolving a limited company. For that reason, many professionals use umbrella companies to try out contracting and see if it suits them.

    Umbrella company vs limited company

    Setting up a limited company, as mentioned, is the main alternative to working through an umbrella company. It’s the route that matches “be your own boss” to a tee. And it has significant financial benefits if you’re willing to put in the extra work.

    Limited companies are a more tax efficient option. Contractors name themselves as the company director and sole shareholder, taking a salary as dividends. There are other tax benefits too, with directors entitled to claim back tax on accountancy fees or office costs in some cases.

    Another benefit with limited companies is the removal of a service fee. As you’re running your own company and taking care of your own finances, there’s no need to pay a service fee from your income.

    However, with this role comes extra responsibility. Unlike an umbrella company, you’re solely responsible for your finances, tax and general administration. That means processing invoices, chasing payments and paying yourself through the company. It may even be worth hiring an accountant to assist with these responsibilities, which could take away some of the financial benefit.

    Making your choice

    To decide between an umbrella company and limited company, carefully consider how much time and effort you can commit to contracting. If you’re just starting out or, for whatever reason, you don’t have the time to take care of invoicing and tax, an umbrella company may be the best option.

    Alternatively, if you’re looking for the highest possible income and you’re prepared to commit the time and effort – a limited company might be suitable. Remember, a limited company is more of a commitment, while you can easily use an umbrella company for a short period to test things out.

  • Umbrella Company Services – The Next Steps for Contractors

    8 Key Steps to Start Using Umbrella Services

    Umbrella companies bridge the gap between full time employment and self-employed contracting. They take care of payroll, provide regular payment terms and in some cases offer employment benefits like paid holidays and sick pay.

    To sign up with an umbrella company online you’ll need to disclose some personal information along with signing a contract of employment, just like you would if you were accepting a job. Of course, working for an umbrella isn’t quite like any other means of employment but the paperwork you’ll fill out is very similar.

    All of the applications on Umbrella Broker are hosted by Adobe Sign, a safe and secure way to sign your contract and pass your personal details onto the umbrella.

    Umbrella Broker does not store the details you enter into these forms, they go directly to your new umbrella.

    Examples of the information in an application include:

    • Your name and address
    • Your contract details
    • Your bank details (so they can pay you)

    When you’ve completed your application, you chosen umbrella will hand hold you through a series of steps designed to ensure your payments run smoothly.

    Read on as we look at umbrella companies and how the process works after applying.

    1. Contacting your client or agency

    Having applied, your umbrella company will contact your end client or recruitment agency. They do this to inform clients or agencies that they will be invoicing on your behalf. This is a key step for yourself, your client or agency and your umbrella company as it’s the main thing that will be changing for all parties. You no longer have to worry about invoicing or chasing up payments.

    2. Verification

    Your umbrella company also needs to verify your identity. As a company you work through, they may never meet you. But they still need to check you’re entitled to work in the UK, for instance. To do so, they usually need a copy of your official ID documentation.

    This is also important because they need to cover you under their insurance. Umbrella companies typically provide public liability, professional indemnity and employers’ liability insurance for their employees. Again, this is a worry taken off your mind as it covers you against most damages, compensation or legal fees.

    3. Engagement

    To assist with set up, your agency or client will send an engagement pack to the umbrella company. This will include a schedule of your work and payment terms. Within this, your client or agency will also request details of your umbrella company’s insurance information and evidence of tax compliance, in some instances. Essentially, it’s a way of making sure you’re covered from day one.

    4. Contract exchange

    Your agency and umbrella company will exchange a contract for service. This outlines the agreement between the two companies and is separate from the contract you’ll sign with the umbrella company to become an employee.

    5. Timesheet

    Once the contracts are in place, your umbrella company will add you as an employee and walk you through the process of providing them with a timesheet. Your timesheet contains information about the hours you’ve worked each week for one or multiple clients, as well as any expenses you’re entitled to claim.

    6. Invoicing

    Once you submit your first timesheet, your umbrella company will raise an invoice for your work and send it to your recruitment agency or end client. The client or agency will pay your umbrella company, who will process the funds through pay as you earn (PAYE) tax either the same day or the day following payment.

    7. Payment

    The next step depends on the payment terms you have agreed with your umbrella company. They will either pay you weekly or monthly, with all the funds you have accumulated for that period – minus tax and national insurance. You will receive a net payment along with a payslip for your own records, as you would with a regular employer.

    8. Tax payments

    Finally, it’s up to the umbrella company to process the money deducted from your pay for income tax and national insurance. Once a month, they will send the correct amount to HMRC on your behalf.

    Steps you should take

    If you’re ready to choose an umbrella company, there are also some steps to take yourself to make sure you get the right umbrella services for you.

    1. Background check

    Find out as much as you can about the umbrella company’s background. Check their credit rating and how long the company has been trading. Both of these are good indicators of how much you can trust a company.

    2. Check the fees

    Umbrella companies charge contractors a fee for their services, which can vary depending on the provider. Find out whether you will be paying weekly or monthly – and how much you’re paying.

    3. And what’s included…

    The cheapest umbrella services aren’t always the best. Some umbrella companies will charge extra for things like processing your expenses, while others will include benefits like statutory leave and sick pay as part of their fee. Consider the monetary value of these benefits when you’re comparing umbrella companies.

    4. Contracts

    Your umbrella company acts as a full-time employer, so you want to make sure you’re covered with a full contract of employment. This is where your statutory rights and benefits will be outlined, so it’s essential to check over before signing anything. Look for payment terms – when and how you’ll be paid – along with the process or penalties should you want to leave.

    5. Support

    Another key element in your umbrella service is the support on offer. Firstly, what are the umbrella company’s opening hours? Do you have a contact for outside-of-hours support? Contracting is far from a 9 to 5 lifestyle, so you’ll want to be able to contact them whenever you need assistance.

    Secondly, how are timesheets submitted? It may be useful if your umbrella company provides an online portal, making it easier to keep track of what you’ve submitted and do things when it suits you.

    Umbrella comparison made easy

    Umbrella Broker provides a quick and easy way for contractors to compare umbrella companies. We provide up to ten free umbrella quotes in under 2 minutes, so you don’t have to do the hard work.

    Need any assistance? Feel free to get in touch with our team.

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  • How contractors can benefit from employee benefit schemes?

    As a self-employed contractor you could be forgiven that the world of workplace benefits is firmly off the market, but you couldn’t be further from the truth. Yes your end clients benefits scheme will probably be off the table, but by working through an umbrella company you could get access to a host of employee benefits that not only make contracting easier but actually give back some of the fees you pay to the umbrella every week.

    Employee benefits come in many shapes and sizes but they often include:

    • Public Liability Insurance Cover (about £3.84 per week)
    • Professional Indemnity Insurance Cover (about £5.19 per week)
    • Perkbox Rewards (about £6.09 per week)
    • Cycle to work schemes

    If you’re paying an umbrella company £25 per week, then it’s important to offset that cost against some of the benefits you’d otherwise need to pay for out of your own pocket.

    Read on for a breakdown of these benefits and how they can financially benefit the contractors that receive them.

    Public Liability Cover – on average £200 per annum

    As a contractor working through a Limited Company or as a self-employed worker, in order to step on site and fulfil your contract you are often required to provide your client with proof of your public liability insurance.

    Public liability insurance protects, you, your client and their end customer in the event that you cause injury or loss to someone in the course of performing your role (though not through your actual resulting work). Say for example you’re in IT and you’re building a piece of software. In the course of making this software, you lose the memory stick that houses the data on it. In this event it’s your public liability insurance that foots the bill for the loss caused to your client rather than you, meaning that a blip in an otherwise perfect career won’t cost you your house.

    Public liability insurance isn’t compulsory in the UK, but it is often a minimum requirement to engage with a client. While your work might take nine months to complete and the end result would be covered under your mandatory professional indemnity insurance cover, any mishap you encounter in the course of the nine months you take to reach the end result won’t be.

    Professional Indemnity Insurance – on average £270 per annum

    As mentioned above, unlike public liability insurance, professional indemnity insurance is a legal requirement. As an expert, you’d expect that every piece of work you do is top notch but sometimes things can go wrong and in the event that this is a result of your work, this is the insurance that will cover the bill.

    Say for example you’re a railway engineer, and in the course of your inspections you miss a faulty signal, which in turn causes an accident. As a contractor you could be financially liable for the implications of that accident and as such unless you have professional indemnity insurance you could end up footing the bill.

    Of course, no one wants to ever make a claim on their insurance but much like taking out car insurance, as a responsible contractor you need to ensure should the worst happen, you’re covered.

    Perkbox (and other employee perk schemes) – a minimum of £317 per annum

    Perkbox is the UK’s leading employee reward scheme and it’s becoming increasingly popular amongst high end umbrellas that want to give a little more back to their loyal customers.

    The perks are pretty straight forward, with 90% consisting of money off vouchers at leading retailers for example:

    • Exclusive Odeon, London Eye & National Attraction Offers
    • 5% off at Ikea
    • 8% off Just Eat
    • 8% off at M&S
    • 10% off at Debenhams
    • 10% off at Charles Tyrwhitt
    • 15% off at New Look

    However there are a few big winners that you can benefit from as soon as you join your umbrella company including:

    • 20% off EE monthly phone bills (worth £96)
    • Free Mobile Phone insurance (worth £179)
    • 12 Free Coffees from Café Nero (worth £42)

    Ignoring the plethora of other discounts on offer, these three offers alone will net you a benefit of £6.09 per week.

    Employee benefits can add up fast

    If you combine both contractor insurances and perkbox, the average contractor on £50,000 per annum can expect to benefit to the tune of around £15 per week. Compare that to an umbrella fee of £25 per week and net weekly cost is actually just £10.

    For more information on umbrella companies, the benefits they offer and how these will affect your net take home after tax, compare umbrella companies online today.

     

  • Insurance For Contractors

    Insurance for contractors is of paramount importance, covering you against legal costs, unexpected damage and even cyber attacks. There are several kinds of contractor insurance available, so it’s a smart move to get familiar before choosing the right one for you.

    That’s where Umbrella Broker can help, with our review of the different types of cover available to contractors…

     

    Public liability insurance

    There are two kinds of liability insurance available for contractors. The first is public liability insurance, which covers any risk to the public and the resulting claims. This could be anything from your postman slipping when delivering to your site, falling debris from scaffolding causing injury or just somebody tripping over a loose cable while passing.

    It also includes your clients when they visit your premises, as well as any damage that may be caused by you or your employees when visiting a client’s site. Let’s say you knock over something expensive while you’re there – they won’t think twice about claiming for that damage.

    In short, public liability insurance is essential for anyone who deals with customers or clients face to face. The cost will depend on a number of factors, such as:

    • Your industry
    • How many employees and clients you have
    • Your location
    • Previous claims

     

    Employers’ liability insurance

    The other type of cover is employers’ liability insurance, which is a legal requirement for contractors with one or more employees. Here’s the difference: employers’ liability insurance protects you against costs from compensation should employees become injured or unwell from work.

    As soon as you take on any employees, you need to be covered for at least £5 million by employers’ liability insurance. Insurance must be provided by an authorised insurer and it includes any casual workers or short-term contracts. Fail to do so and you could face a fine of up to £2,500 per uninsured day.

     

    Professional indemnity insurance

    With professional indemnity insurance, you’re protected from any claims against your services, products or advice. So, if a client claims that your work is substandard or incomplete, your insurance will cover the cost of the legal defence and any expenses as well as any compensation should they succeed in claiming against you.

    Professional indemnity insurance is required for several professions – such as management consultancy, business consultancy and IT contractors – in order to secure contracts. Basically, clients want to know you’re covered, so they know they’re covered too.

    Even if you’re not legally obliged to take out professional indemnity insurance, it’s always better to be safe than sorry. Legal fees and compensation can stack up and cost thousands just for one claim. They can be crippling if you have to fork out yourself, while the cost of insurance is completely manageable.

     

    Personal accident insurance

    As a contractor, there’s no sick pay to tide you by if a serious injury stops you working. Instead, you’ll be short of money or reliant on your own savings. That’s where personal accident insurance comes in. When you’re covered by personal accident insurance, you will receive an ongoing payment to cover the loss in profits while you’re out of work, or a lump sum if you suffer a permanent disability.

    Personal accident insurance can also be taken out for key employees. Again, if one of your employees is injured, it’s you that will need to cover their wage or sick pay. Statutory Sick Pay is £92.05 per week for up to 28 weeks and can no longer be reclaimed from the government. That’s over £350 per month, which could cause serious problems for some contractors if they need to cover it themselves.

    As well as temporary injuries, personal accident insurance can be taken out to cover death. A lump sum will be paid out for people who are covered by the policy. This could help relatives of the contractor, or the contractor themselves if one of their employees can no longer work.

     

    Contents insurance

    Insurance for your office contents protects you in case any office equipment or furniture is lost, stolen or damaged. This could be computers and office phones, furniture like desks and chairs or even important documents that are stored on your premises.

    You can even insure portable items, which aren’t stored permanently in your office. Fortunately, with the right flexible policy, you can get insurance for remote working too – so yourself or any employees will be insured when working at home.

     

    Buildings insurance

    Buildings insurance is useful for contractors who own their office. Unlike contents insurance, it covers fire and water damage to the office itself. Without it, a fire or leak could set you back thousands. However, it’s important to have contents insurance alongside buildings insurance, as no contents are covered by the latter.

     

    Cyber insurance

    Most contractors are reliant on digital tools in some way or another – whether it’s for communication, payment or just data storage. Needless to say, any data breaches, hacks or information loss can set you back and cost you big. That’s where cyber insurance comes in.

    Also known as cyber risk insurance, it covers you for the recovery process after any cyber damage or loss. This could include investigating what went wrong, notifying and compensating clients, and reimbursing monetary losses.

     

    Which type is right for you?

    Contractors’ insurance isn’t a case of “either-or”. Instead, it’s about deciding where the risk lies and which plans are required to cover you. Professional Indemnity and Public Liability are the two most common insurance types held by contractors – in addition to Employers’ Liability insurance because it’s required by law.

    However, Professional Indemnity insurance is required by some regulators and essential for members of some professional bodies. Because of this, both Professional Indemnity and Employers’ Liability insurance are provided as standard by umbrella companies.

    The other types of insurance – such as cover for contents, cyber attacks or personal accidents – are optional, but will provide that extra peace of mind.

     

    Make things easier

    If you’re looking for peace of mind with contracting work, Umbrella Broker can help. We help contractors find the right umbrella company and accountant, so there’s no need to worry about payroll and taxes.

    Need more information? Feel free to contact us today.

     

  • Do Umbrella Companies Have a Pension Scheme?

    Umbrella Company Pension Schemes – What You Need to Know

    Pension schemes help employees put money aside for retirement directly from their wage. The problem for self-employed professionals is that they need to manage this themselves, either by setting up a pension scheme or saving money from their income.

    Fortunately, umbrella companies class contractors as employees, giving them all the benefits of employment. That includes a pension scheme, which now requires contribution from the umbrella company too. Let’s take a closer look at the statutory pension schemes available through umbrella companies.

    Auto-enrolment pensions

    In 2012, the UK Government decided that workers weren’t saving enough for their retirement. People were relying too much on the State Pension, which had not received adequate funding to match the continuing rise in life expectancy and an ageing population.

    To combat this, they introduced automatic enrolment. The new system, rolled out from 2012 to 2018, requires employers to automatically enrol eligible employees onto a workplace pension scheme. Employers are also responsible for deducting contributions from their pre-tax income and making a minimum statutory contribution to the employee’s savings.

    In October 2012, this minimum contribution was set to 1 percent for employees, which was matched by employers, rising in 2018:

    • October 2012 to 5th April 2018: employers 1%, employees 1%
    • 6th April 2018 to 5th April 2019: employers 2%, employees 3%
    • 6th April 2019 onwards: employers 3%, employees 5%

    However for anyone that doesn’t want to contribute to a pension once you’re enrolled you can still opt out.

    Umbrella company pension scheme

    Working through an umbrella company, contractors are classed as an employee. That means, yes, you are automatically enrolled onto the umbrella company’s pension scheme as long as you meet the following criteria:

    • Your work is primarily UK-based
    • You earn more than £10,000 per year
    • You’re between 22 and the state pension age.

    Until 5th April 2019, 3% of your pre-tax salary will go directly into a pension fund, with the umbrella company contributing a further 2%. From 6th April 2019, 5% of your pre-tax salary will go into the same pension fund, with your umbrella company contributing a further 3%.

    The benefits of an umbrella company pension

    Some contractors may worry that this will eat away at their wages. Don’t. Pension contributions are made before your wages are taxed. That means anything that goes from your wage into your pension fund is tax-free rather than being taxed at 20% or even 40%. So, instead of receiving 60% of your income, you receive 100% via a pension fund.

    Let’s say you earn over £46,351 per year, which puts you in the higher rate band of income tax. Anything you earn beyond that £46,351 per year (roughly £3,863 per month) is taxed at a rate of 40%. You get just £60 for every £100 of income. Why not put the full £100 straight into the pension fund instead?

    That’s why many people, especially those in the higher rate band of income tax, choose to put more than the minimum into their pension fund. And this is entirely possible. Contractors can contribute up to £40,000 to their pension scheme per year, comprising tax-free income and employer contributions. Currently, there is a lifetime allowance of £1,030,000 which can be contributed before incurring any tax.

    Using your funds

    With the increased earnings of contracting, it’s common for contractors to retire early. Alternatively, you might simply want to get some of the money out for a holiday, new car or home improvement. The good news is: you don’t have to wait until the state pension age to access the pension funds you’ve built up through your umbrella company pension.

    Once you’re 55 or over, you can access up to 25% of your pension pot as a tax-free lump sum. Anything beyond the 25% will be taxed as an addition to the rest of your income that tax year – either 20% over £11,850, 40% over £46,351 or £45% over £150,000, as things currently stand. That’s why most people choose to take their pension as regular income once they have retired, to minimise the amount of tax paid.

    What about limited companies?

    Contractors who operate as a limited company can still benefit from the tax relief of a pension scheme. However, as with most things relating to limited companies, this requires a lot more effort on their part. Firstly, they have to get the right balance between salary and dividend payments to increase the limit on their pension contributions.

    Because employer contributions, such as pensions, count as a business expense, they are subject to tax relief. So, when you contribute to your pension scheme, as a director, the company could save money in corporation tax.

    However, this has added complications because it needs to be fully compliant as an allowable expense. Any other employees, for example, should be given comparable packages to prove to HMRC that it is a genuine business expense.

    On top of all that, using a limited company pension scheme means setting up and paying into the pension fund yourself. Along with all the other administrative work for limited company owners, it’s definitely worth seeking advice and assistant from a trusted accountant.

    Get the right assistance

    Whether you’re looking to compare umbrella companies or find the right accountant, you can make the right choice with Umbrella Broker. Our online comparison tool lets you assess multiple companies in a matter of minutes. It couldn’t be easier to take the hassle out of contracting. Contact us today for more information.

  • What You Can Claim on Contractor Expenses?

    Contractor Expenses Explained

    When you’re working as a contractor, there are certain expenses you’ll incur, such as travel, equipment or even entertaining clients. Unlike working for an employer, you won’t have someone there to cover the bill for you, so you’ll be faced with two options as to how to treat those expenses moving forward.

    As a contractor you can either offset some of the expenses against your tax bill, or recover the costs from your end client. But beware, both options aren’t always possible. Read on as Umbrella Broker explains the ins and outs of contractor expenses.

    What expenses can I claim?

    By definition, business expenses are costs that you’ve incurred purely for business purposes. While some are more common, like travel costs, others are more specific and can easily be missed. When considering how to treat your expenses, it’s important to understand the difference between claimable and offsettable business expenses.

    Claimable expenses are costs you can get back from the client. On the other hand, offsettable expenses can be offset against tax. While you used to be able to do both through an umbrella company, after a series of clamp downs, most contractors are now unable to offset any expenses while working through an umbrella.

    If you have a lot of offsettable expenses, it’s worth considering working through your own Limited Company. If your expenses will be low or can be claimed back from your end clients, then an umbrella company is a good option to choose.

    How does IR35 affect expenses?

    An important thing to note is that you can’t offset expenses through either a limited company or an umbrella if you’re working inside IR35 (most public sector workers). Limited companies working outside IR35 can still benefit from offsetting expenses, while contractors inside IR35 can only claim administration expenses, some work-related subscriptions and their pension contributions.

    This means that for those caught by IR35, the hassle of administering a limited company for little taxable benefit is too great, with the majority opting to use an umbrella instead.

    Expenses and tax

    If you’re simply claiming back an expense from your client then you will be reimbursed in full for your expense and will incur no tax on the payment.

    However, offsetting expenses against tax is not as simple. In essence, your expenses are deducted from your income, to find your true income level. So, if you earned £5,000 in a month on your contract and spent a total of £1,000 on business expenses, you would pay tax on the £4,000 actual income you earned with £1,000 tax-free. Having this amount of your earnings without tax essentially repays you for the money you spent on the expenses in the first place.

    This is just a general example, however, and doesn’t take into account the complexities of PAYE taxation or dividend payments. It’s always best to seek professional assistance from an accountant when you’re dealing with taxation and expenses.

    With that in mind, this rest of this post will focus on offsettable expenses. Here are the different things you can claim for as an offsettable business expense…

    • Travelling by car

    During a contract away from their usual place of work, contractors can claim for travel costs. They do so at a rate of 45p per mile up to 10,000 miles in a fiscal year. That’s the tax year, which runs from 6th April to 5th April the following year. After you’ve travelled 10,000 miles, you can only claim 25p per mile.

    The mileage allowance covers fuel and vehicle running costs. But you can also claim for parking costs and any congestion charges or toll roads. Contractors can also claim tax back on 5p per mile if they are a passenger in a car. However, it’s important to note that you can’t claim for speeding or parking fines.

    • Other transport

    If you’re traveling by motorcycle, you can claim back tax at a rate of 24p per mile. Travelling by bicycle, on the other hand, can be claimed for at a rate of 20p per mile. Contractors can claim back the tax for the cost of their journey on public transport too. To do so, you’ll need to keep your receipts or tickets with prices on.

    You can claim for any mode of transport, whether it’s bus, train or plane, but it needs to be the most suitable, cost-effective mode of transport for your journey. For trains and planes especially, tickets should be economy class and booked in advance at the best rate, where possible.

    • Accommodation

    If you need to stay overnight for one or several nights to work on a contract, you can claim back the cost of the hotel as an expense. Again, this should be booked in advance to get the best rate, where possible.

    While there is no set limit, any accommodation costs claimed as an expense must be considered ‘reasonable’. So, spending hundreds of pounds per night when cheaper alternatives are available a similar distance away from your place of work could be rejected for being an unreasonable expense.

    • Meals

    It may surprise you to know that meals can be claimed as expenses. When you’re working away at a remote site or staying overnight for work, you can claim back the cost of breakfast or an evening meal where it’s ‘reasonable’.

    Make sure to keep any receipts, as you will need to claim meal costs individually. You can’t claim back the cost of meals for the whole day. Reasonable meal costs can also be claimed back when entertaining clients. So, you can get back the VAT when you take potential clients for lunch.

    • Clothing

    If you wear your normal clothes to work, you can’t claim anything back as an expense. This includes things like suits, which you might not consider ‘normal clothes’ because you don’t wear them at home.

    The distinction comes with clothes that are essential to the work you’re carrying out. This includes branded uniforms with a company logo on or protective clothing like hard hats or high visibility items.

    • Office costs

    Renting and running an office is one of the biggest expenses for some contractors. Fortunately, your rent, business rates, energy bills and insurance can all be claimed as expenses. Other office equipment can be claimed too, as long as it is something that will be used for less than 2 years.

    So, while permanent furniture or computers cannot be claimed, you can claim expenses for the following:

    • Phone bills
    • Internet bills
    • Postage costs
    • Stationery and printer ink
    • Software being used for less than 2 years or software that is renewed regularly over periods shorter than 2 years
    • Training

    In some cases, you may need to complete training to improve the standard of work on a particular contract. To claim this back as an expense, it must be relevant to the contract you’re working on.

    Quick and easy umbrella comparison

    With Umbrella Broker, you can compare umbrella companies with no hassle at all. Simply create an account and you’ll be able to weigh up the best umbrella provider for you and get the level of service you deserve. Get in touch today for more information.

  • Saving Money With The Marriage Allowance

    Marriage joins two people together in the eyes of the law. And with this comes several benefits, including the Marriage Allowance for tax. But who qualifies? And how much is it worth? Read on as Umbrella Broker explores the ins and outs of the marriage allowance for contractors.

    What is the Marriage Allowance?

    First introduced in April 2015, the Marriage Allowance is a tax benefit for married couples in the UK. In 2018, it has been extended to include couples in civil partnership too. Rather being an allowance in itself for married couples or civil partners, the Marriage Allowance enables you to transfer part of your tax-free personal allowance to your partner – and vice versa.

    The personal allowance, currently at £11,850, is exempt from taxation for all UK individuals. But in some cases, you or your partner may earn less than this amount. With the Marriage Allowance, the lower earner in the marriage or civil partnership can transfer up to 10% of their tax-free income allowance to the higher earner.

    From £11,850, that means you can transfer up to £1,190. At the 20% tax rate for £11,851 to £46,350, that’s up to £238 per year taken off your tax bill and added to your net income.

     

    Contractor Marriage Allowance

    Good news – contractors are eligible for the Marriage Allowance as long as they meet the criteria for other employees:

    • You need to be married or in a civil partnership
    • Your partner must earn less than £11,850 per year
    • You must be a basic rate taxpayer. In short, this means your annual pre-tax income must be between £11,851 and £46,350.

    Contractors earning above £46,350 are categorized as higher rate taxpayers. Unfortunately, that means they aren’t eligible for the Marriage Allowance. The same is true for additional rate taxpayers, who are earning over £150,000 before tax.

    Additionally, the 10% your partner transfers cannot take their total earnings to over the £11,850 tax-free allowance. So, if they have earned £11,000 and transfer you 10% of their allowance – which would be £1,190 – it would take their total earnings to £12,190. In this case, they would be taxed on the £340 which exceeds the tax-free allowance.

     

    Contractors applying for the Marriage Allowance

    If you and your partner are eligible for the marriage allowance, you won’t be automatically enrolled. Instead, the lower-earning partner needs to apply for the allowance. In fact, millions of couples don’t claim the allowance despite being eligible.

    To complete the applications, you will require the following…

     

    • National Insurance numbers for both people
    • Proof of identity for both people – such as a passport, driving licence, P60, last 3 payslips or the last 4 digits of a bank account which is used to receive child benefits, tax credits or state pension payments.

    If you have this information and you’re eligible, the application should be both quick and straightforward. Best of all, applications can be made online.

    Another thing that’s important to note is what to do when your circumstances change. HMRC will continue to transfer the tax-free allowance between your partner’s allowance and yours. If you get divorced, dissolve your civil partnership or your partner dies, HMRC needs to know immediately or you will be forced to pay back any falsely claimed allowances at a later date.

     

    Receiving the Marriage Allowance

    To transfer the allowance, HMRC generally changes tax code for both people. This automatically increases your tax-free allowance and reduces that of your partner. Alternatively, for self-assessment tax returns, the changed tax code will reduce your self-assessment bill.

    After applying, it can take up to 2 months for the allowance transfer to take place. Don’t worry though, claims will be backdated to the start of the current tax year automatically. Because the Marriage Allowance was introduced in 2015, claims can also be backdated for previous years.

    From 2015-16, the first year of the Marriage Allowance, it was worth £212. It rose to £220 in 2016-17, and to £230 in 2017-18. So, if you ask HMRC to backdate your Marriage Allowance claim, you could be in for an extra £662 on top of this year’s allowance of £238.

     

    Let an umbrella company help

    Like any tax matters, the Marriage Allowance is simpler through an umbrella company. Rather than processing it as part of your self-assessment returns, your extra allowance will be processed by the umbrella company before sending you a net amount as take-home pay.

    It’s contracting without the hassle. And with Umbrella Broker, you can find the right umbrella company for you in minutes. Contact us today for more information.

  • What Childcare Vouchers Can You Claim as a Contractor?

    Contractor Childcare Vouchers vs Tax-Free Childcare

    It’s not easy balancing contracting work with childcare. You can either cut back on work by looking after your children or lose some of your earnings paying out for childcare.

    Childcare vouchers offer a practical solution, giving people tax relief on the money they put towards childcare. However, from October 2018, they will no longer be available to new applicants. Instead, people can claim through the Tax-Free Childcare scheme.

    So, how does it all work? Can contractors claim? And what is the best option for you? Read on for Umbrella Broker’s guide to contractor childcare vouchers and tax-free childcare.

    What are childcare vouchers?

    The Childcare Voucher scheme allows employees to take some of their wages as childcare vouchers, rather than money directly into their bank account. Why? By doing so, this part of their wage is exempt from tax and national insurance.

    Employees can take up to £55 a week of their wages as childcare vouchers. This can be used to pay for approved childcare costs, including:

    • Registered childminders, nurseries or clubs
    • Childminders through an Ofsted-registered agency
    • A registered school
    • A care worker through a registered home care agency

    Depending on the specific scheme, these vouchers may also be used on childcare assistance provided by your employer – such as an on-site staff nursery. Needless to say, these vouchers can only be used for your own child or stepchild who lives with you.

    £55 per week amounts to £243 a month and over £2,800 over the course of a year. Considering exemptions for both tax (20%) and national insurance (13.8%), that provides a net benefit of over £1,000 for basic rate tax payers.

    The amount you can claim is reduced slightly for higher and additional rate taxpayers:

    • Higher rate: £28 per week, £124 per month and £1484 per year
    • Additional rate: £22 per week, £97 per month and £1166 per year

    Contractor childcare vouchers

    Because they’re not classed as an employee, self-employed contractors cannot claim childcare vouchers. There are ways for contractors to get the benefits of tax-free childcare vouchers, however. Firstly, through their own limited company. Contractors operating as a limited company can pay childcare providers directly, which will reduce their corporation tax bill.

    However, the easiest way is through a contracting umbrella. Because they add contractors as an employee, you can access the benefits of childcare vouchers with no extra admin on your part. The value of childcare vouchers is simply subtracted from your wage before it’s processed through pay-as-you-earn tax.

    Things are changing

    From 4th October 2018, new applicants can no longer join childcare voucher schemes. People already enrolled on a childcare vouchers scheme can continue to use it as long as they stay with the same employer and the employer continues to run the scheme.

    Instead of childcare vouchers, new applications will need to go through Tax-Free Childcare to gain tax exemption on some childcare costs. Tax-Free Childcare works by reducing the cost of childcare to 80%. The government pays £2 for every £8 you pay towards childcare.

    Essentially, for £300 worth of nursery costs, you would pay £240 and the government would contribute the remaining £60. So, the childcare costs are effectively tax-free for parents. This is available to the value of £500 every three months, per child.

    Who is eligible for Tax-Free Childcare?

    Tax-Free Childcare is meant to reduce the financial burden of childcare for working parents. It covers all the same registered childcare services as childcare vouchers but is only available for children aged 11 or under – or 16 and under with a disability.

    You’re eligible if you and your partner (if you have one) are in work and earning at least the minimum wage for 16 hours a week or more. However, you won’t be eligible if either you or your partner has a taxable income over £100,000.

    The main benefit with Tax-Free Childcare is that self-employed workers can use the system. Rather than employers deducting costs before processing wages, the childcare costs are processed through an online account, where the government contributes their 20% of the cost.

    Comparing the two

    As mentioned, existing users of childcare vouchers can continue to use them as long as their employer continues to use the scheme. However, once they start using Tax-Free Childcare, their childcare vouchers will be stopped. So, which is better for you?

    Because childcare vouchers make your earnings exempt from both tax and national insurance – rather than just redeeming the tax value like Tax-Free Childcare – they are the best option for most parents. However, the limits on how much you can spend using childcare vouchers makes them unsuitable for parents with several children.

    Tax-Free Childcare is the better option for any single parents spending over £4,650 on registered childcare or working couples spending over £9,300.

    30 hours free

    Another government scheme that goes hand in hand with Tax-Free Childcare is 30 Hours Free Childcare. This does what it says on the tin – gives 30 hours of free childcare to parents who are eligible. Fortunately, the eligibility criteria are the same as for the Tax-Free Childcare scheme.

    While all parents get 15 hours of free childcare for 3-4-year-old pre-school children, this scheme provides double that to those who are working over 16 hours a week.

    Make contracting easier

    Childcare is just one of the many considerations for contractors. On top of that, you have invoicing, tax and expenses to worry about, along with your actual work. Umbrella companies make things easier, processing your income and paying you a simple net sum each month

    Umbrella Broker can help you find the right umbrella company. Our online comparison tool helps you compare different providers in a matter of minutes. Any questions? Contact our team who will be happy to assist.

  • What Exactly is an Umbrella Company?

    Contracting is an exciting career change for professionals in all kinds of sectors. It provides more income, added freedom and extra flexibility in the way you work. Rather than providing your services to an employer, you sell them directly to a client who pays you much like another company.

    However, unlike another company, you don’t have to use the same invoicing and payment route. Contractors can choose between setting up a limited company and working through an umbrella company. Unlike the sometimes-overwhelming step of setting up a limited company, an umbrella company provides a simple and straightforward way to start your contracting career.

    Want to know more? Read on as Umbrella Broker looks at how umbrella companies work, how they compare to the alternatives and whether a contractor umbrella company is right for you.

    The basics of umbrella companies

    It’s understandable that some people are unfamiliar with umbrella companies. If you’re not a contractor, they’re not really something you will encounter. However, they’re actually one of the most common options for contractors because of how easy they make it to work for yourself.

    While limited companies need to be set up and run by contractors, umbrella companies simply hire contractors as pay-as-you-earn (PAYE) employees. You are added to the payroll of the umbrella company and pay a fee to them. For this fee, they take care of all your administrative and financial duties – like a permanent employer.

    They will provide statutory rights like insurance and paid leave. They’re also responsible for paying your taxes, so any money you receive is your take home pay. However, unlike a permanent employer, your umbrella company won’t set you work. You can take on contracts as normal, focus on work and leave the administrative work to them.

    How do umbrella companies work?

    When you’re employed by an umbrella company, you simply submit your timesheet to them after each contract. They will then invoice your client and chase payments, like a middle man working on your behalf. Once payment is received, the umbrella company will deduct and pay the right amount of tax and national insurance contributions (NICs) from your wage and transfer you the final sum.

    Should I use an umbrella company?

    Umbrella companies aren’t for everyone. The alternative – setting up your own limited company – provides higher income as a trade-off for more administrative work. With that in mind, umbrella companies are the ideal solution for contractors that don’t have the time to run their own business while also completing contract work.

    Unlike a limited company, there’s no need to keep track of different payments, create and send invoices or calculate your own tax and NICs. It also removes the burden of company accounts and VAT returns, so you have complete peace of mind and can focus on the job at hand for each contract you work on.

    You don’t have to kick back and relax though. The time and energy you save can be put towards more work or other projects. You could even spend the time on training to improve your skills and secure higher-paid contracts in future.

    Umbrella companies are also useful for people who are new to contracting. Many professionals use them as a transition between regular employment and running their own business. As you become more experienced and establish a bigger client network, it’s possible to switch to a limited company at a later date.

    It’s also the ideal route if you only plan to work in contracting for a temporary period as it’s easy to move in and out of an umbrella company – as opposed to setting up and dissolving a limited company. For that reason, many professionals use umbrella companies to try out contracting and see if it suits them.

    Umbrella company vs limited company

    Setting up a limited company, as mentioned, is the main alternative to working through an umbrella company. It’s the route that matches “be your own boss” to a tee. And it has significant financial benefits if you’re willing to put in the extra work.

    Limited companies are a more tax efficient option. Contractors name themselves as the company director and sole shareholder, taking a salary as dividends. There are other tax benefits too, with directors entitled to claim back tax on accountancy fees or office costs in some cases.

    Another benefit with limited companies is the removal of a service fee. As you’re running your own company and taking care of your own finances, there’s no need to pay a service fee from your income.

    However, with this role comes extra responsibility. Unlike an umbrella company, you’re solely responsible for your finances, tax and general administration. That means processing invoices, chasing payments and paying yourself through the company. It may even be worth hiring an accountant to assist with these responsibilities, which could take away some of the financial benefit.

    Making your choice

    To decide between an umbrella company and limited company, carefully consider how much time and effort you can commit to contracting. If you’re just starting out or, for whatever reason, you don’t have the time to take care of invoicing and tax, an umbrella company may be the best option.

    Alternatively, if you’re looking for the highest possible income and you’re prepared to commit the time and effort – a limited company might be suitable. Remember, a limited company is more of a commitment, while you can easily use an umbrella company for a short period to test things out.

  • Umbrella Company Services – The Next Steps for Contractors

    8 Key Steps to Start Using Umbrella Services

    Umbrella companies bridge the gap between full time employment and self-employed contracting. They take care of payroll, provide regular payment terms and in some cases offer employment benefits like paid holidays and sick pay.

    To sign up with an umbrella company online you’ll need to disclose some personal information along with signing a contract of employment, just like you would if you were accepting a job. Of course, working for an umbrella isn’t quite like any other means of employment but the paperwork you’ll fill out is very similar.

    All of the applications on Umbrella Broker are hosted by Adobe Sign, a safe and secure way to sign your contract and pass your personal details onto the umbrella.

    Umbrella Broker does not store the details you enter into these forms, they go directly to your new umbrella.

    Examples of the information in an application include:

    • Your name and address
    • Your contract details
    • Your bank details (so they can pay you)

    When you’ve completed your application, you chosen umbrella will hand hold you through a series of steps designed to ensure your payments run smoothly.

    Read on as we look at umbrella companies and how the process works after applying.

    1. Contacting your client or agency

    Having applied, your umbrella company will contact your end client or recruitment agency. They do this to inform clients or agencies that they will be invoicing on your behalf. This is a key step for yourself, your client or agency and your umbrella company as it’s the main thing that will be changing for all parties. You no longer have to worry about invoicing or chasing up payments.

    2. Verification

    Your umbrella company also needs to verify your identity. As a company you work through, they may never meet you. But they still need to check you’re entitled to work in the UK, for instance. To do so, they usually need a copy of your official ID documentation.

    This is also important because they need to cover you under their insurance. Umbrella companies typically provide public liability, professional indemnity and employers’ liability insurance for their employees. Again, this is a worry taken off your mind as it covers you against most damages, compensation or legal fees.

    3. Engagement

    To assist with set up, your agency or client will send an engagement pack to the umbrella company. This will include a schedule of your work and payment terms. Within this, your client or agency will also request details of your umbrella company’s insurance information and evidence of tax compliance, in some instances. Essentially, it’s a way of making sure you’re covered from day one.

    4. Contract exchange

    Your agency and umbrella company will exchange a contract for service. This outlines the agreement between the two companies and is separate from the contract you’ll sign with the umbrella company to become an employee.

    5. Timesheet

    Once the contracts are in place, your umbrella company will add you as an employee and walk you through the process of providing them with a timesheet. Your timesheet contains information about the hours you’ve worked each week for one or multiple clients, as well as any expenses you’re entitled to claim.

    6. Invoicing

    Once you submit your first timesheet, your umbrella company will raise an invoice for your work and send it to your recruitment agency or end client. The client or agency will pay your umbrella company, who will process the funds through pay as you earn (PAYE) tax either the same day or the day following payment.

    7. Payment

    The next step depends on the payment terms you have agreed with your umbrella company. They will either pay you weekly or monthly, with all the funds you have accumulated for that period – minus tax and national insurance. You will receive a net payment along with a payslip for your own records, as you would with a regular employer.

    8. Tax payments

    Finally, it’s up to the umbrella company to process the money deducted from your pay for income tax and national insurance. Once a month, they will send the correct amount to HMRC on your behalf.

    Steps you should take

    If you’re ready to choose an umbrella company, there are also some steps to take yourself to make sure you get the right umbrella services for you.

    1. Background check

    Find out as much as you can about the umbrella company’s background. Check their credit rating and how long the company has been trading. Both of these are good indicators of how much you can trust a company.

    2. Check the fees

    Umbrella companies charge contractors a fee for their services, which can vary depending on the provider. Find out whether you will be paying weekly or monthly – and how much you’re paying.

    3. And what’s included…

    The cheapest umbrella services aren’t always the best. Some umbrella companies will charge extra for things like processing your expenses, while others will include benefits like statutory leave and sick pay as part of their fee. Consider the monetary value of these benefits when you’re comparing umbrella companies.

    4. Contracts

    Your umbrella company acts as a full-time employer, so you want to make sure you’re covered with a full contract of employment. This is where your statutory rights and benefits will be outlined, so it’s essential to check over before signing anything. Look for payment terms – when and how you’ll be paid – along with the process or penalties should you want to leave.

    5. Support

    Another key element in your umbrella service is the support on offer. Firstly, what are the umbrella company’s opening hours? Do you have a contact for outside-of-hours support? Contracting is far from a 9 to 5 lifestyle, so you’ll want to be able to contact them whenever you need assistance.

    Secondly, how are timesheets submitted? It may be useful if your umbrella company provides an online portal, making it easier to keep track of what you’ve submitted and do things when it suits you.

    Umbrella comparison made easy

    Umbrella Broker provides a quick and easy way for contractors to compare umbrella companies. We provide up to ten free umbrella quotes in under 2 minutes, so you don’t have to do the hard work.

    Need any assistance? Feel free to get in touch with our team.