Demystifying Umbrella Companies Key Terms
Sometimes buzzwords don’t help, below you will find a comprehensive breakdown of all the key words used within the industry to help you better navigate the documentation found on this site and the interwebs… your welcome.
PAYE – means Pay as you earn. This is how many permanent employers pay their contractors and umbrella also pay by PAYE, which means we declare their tax and NI contributions to the HMRC via real time information (RTI). RTI reports are submitted weekly to the HMRC
SDC – means Supervised, Directed and controlled. A contractor is subjected to supervised direction or control by any person. The type of expense that an PPS employee can claim will depend upon their SDC status, their job role and their contract of employment. Since the 6th April 2016 contractors are no longer able to claim tax relief on their expenses for travelling to and from the end client if they are subject to, or to the right of Supervision, direct and control (SDC) in the manner their contractor do their work. If the contractor is not subjected to, or the right of SDC then they can claim tax relief for your home to client site if they demonstrate the costs have incurred. Please see expenses guide for more information
AWR 12 week qualifying – Once the contractor has been on the assignment for 12 weeks they are entitled to basic employment rights such as annual leave and rest breaks etc
AWR Day one rights – contractors are entitling to day 1 rights as soon as they start their assignment, which are they having the right to facilities and information on job
AWR – means agency workers’ regulations was brought out in 2010 to enable contractors to be entitled to same or no less favourable treatment to basic employment.
PSC – means personal service company – some contractors operate through their own limited company and get paid this way for contractor work.
Outside IR35 – To operate outside IR35 a contractor needs to be able to prove that the way they work is independently. For example – the client has no real control over your duties. If someone is ruled as falsely operating outside of IR35 the contractor can be forced to pay back all previously unpaid tax and a penalty to a similar value and interest for the time.
IR35 – relates to running a limited company and how an individual pays themselves. There are two ways. Inside IR35 through PAYE or outside IR35 which is paying yourself minimum wage and dividends. IR35 was introduce in 2000 designed to catch contractors operating as a ‘disguised employee’
Inside IR35 – means that the contractor is seen as an employee and means they need to be paid by Pay as you earn (PAYE)