Any questions?
Here’s a handy selection of the questions we’re most frequently asked by existing contractors and freelancers, or those people considering joining the big wide world of contractor services.
Take a look at our answers and if anything isn’t clear, or your query isn’t covered, then please contact us and we’ll get back to you with an answer ASAP.
We’re glad you asked! An umbrella company offers contractors most of the benefits of being a limited company without all the responsibilities, hassle and cost of the financial management. It means that contractors can be legally tax-efficient and not be concerned with all the implications of the dreaded IR35 rules.
Working in conjunction with HMRC, providers of genuine umbrella services can allow their employees to offset legitimate business expenses against tax.
The last few years has seen many new umbrella companies coming out of the woodwork and a few old ones reinventing themselves. Before putting yourself, your reputation and your hard-earned finances in the hands of any such organisation, it’s worth noting that any PAYE umbrella structure worth its salt should adhere to the following principles:
- You should be classed as an employee of that business and be given a REAL employment contract.
- They should engage with your recruitment agency or end client on your behalf to provide a skilled individual (that would be you!) to do specific work.
- They should invoice all work for you, chase and collect payment and deduct tax and NI at source plus offset legitimate business expenses against tax.
- A word of warning about legitimate business expenses! Having a "dispensation" (a letter from the tax man) doesn’t mean you don’t need receipts and can therefore claim for things you haven’t bought. Remember, it will be down to YOU to pay the tax when HMRC come knocking!
- They shouldn’t charge you a fee based on a percentage of your earnings. After all, why would an employer charge you a variable amount to prepare your salary?
- They shouldn’t hold back your money to cover fees or charge more for processing your employee expenses.
Parasol provides PAYE umbrella services. We employ contractors directly as employees. The employee submits timesheets and expenses claims through our all-singing-all-dancing online portal, we invoice the client/agency on a weekly or monthly basis on the contractor employee’s behalf, we receive and manage the payments and pay the employee direct into their bank account.
As part of the process, Parasol calculates and deducts NI and tax at source, easing the admin burden and ensuring that each employee wholly complies with HMRC.
The contractor gets the best of both worlds – the freedom of arranging their own assignments, choosing who they work for and for how much, but without the stress, hassle and responsibility of being a company director.
We use the term to describe a person working on a temporary basis for an end client, usually having been placed there by a recruitment agency. Many contractors call themselves consultants or freelancers and in some industries, they may be termed flexible or contingent workers or interims. Typically, they will be brought in to work on a specific project for a set period of time being paid a daily rate, or to cover a permanent employee’s period of absence eg, maternity leave.
In addition to the main PAYE contractor management services, Parasol can provide a whole range of additional services and benefits specifically designed with contractors in mind. We offer financial services such as pensions, mortgages and life assurance, as well as legal support services that are all tailored to give you all the back-up and support you need in your contracting career
IR35 is a piece of tax legislation announced in 1999, which took effect from April 2000, that effectively seeks to tax contractors, consultants, freelancers and other types of trading arrangements as if the individuals were employed by the end client themselves.
Historically, small single person companies were set up and used to reduce the amount of taxation paid through using dividend payments. HMRC viewed this as disguised employment and a way to avoid paying tax. IR35 was a response to that and over nine years later is still striking fear into the hearts of freelancers!
There have been many arguments that small companies should be allowed to trade as if outside of IR35 and thus able to still make tax efficient dividend payments.
Today, unlike Parasol, some umbrella schemes still use dividend payment systems and offer IR35 insurance or IR35 friendly contracts. But - and it’s a big but - contractors in these schemes are still at risk of having to pay back underpaid tax going back some six years. In our view, it’s just not worth it.
That’s why, when you join Parasol you become a PAYE employee of our company and pay your tax and NI contributions through the normal HMRC channels. Neither Parasol, nor our contractors, are affected in any way by IR35 because our employment product is neither a disguised scheme nor a service that needs IR35 insurances.
To see what your take home pay as a Parasol employee could be use our online IR35 calculator, safe in the knowledge that everything is above board and within the tax laws.
You may have also seen reference to "S660a" in your research. This relates to tax legislation to clamp down on paying spouse dividends through a company route, which again HMRC viewed as avoidance.
Some schemes still exist that provide this type of trading arrangement but clearly employing a partner/wife/husband who genuinely does not contribute to the business is a risky approach.
Not long at all if you keep on top of your online timesheets! As soon as we receive payment from the agency or client you’re working for, we’ll match these up with your online timesheet before processing them. We’ll take into account any expenses, deductions or allowances that apply, calculate your tax and NI contributions and make payments to the HMRC on your behalf on a PAYE basis, then transfer the net amount into your bank account via BACs within just 2 working days of us receiving your funds. You can’t say fairer than that
Of course we’ll go out of our way to help. We normally transfer funds into your account via BACs which takes 3 working days. However, for an additional deduction of just £35, we’ll happily arrange for funds to be paid via CHAPs so that they land in your account the very same day that they’re sent.
These are the costs incurred during your day-to-day business that have been authorised by your end client or agency to be reimbursed by them. This can include a wide range of things and it’s important that all rechargeable expenses have been clearly identified and agreed between you and your end client or agency before the start of any contract, so there’s no confusion.
As well as the paperwork you’ll need to complete for your end client, an online claim must be made to us via the Parasol website. We’ll also require all original receipts relating to your claim*. For every online claim submitted, an invoice will be automatically generated which we will then send on to your end client or agency.
* If you are entering a claim under a VAT chargeable category we will require an original VAT receipt
Parasol has a simple to use online PAYE calculator that will work out just how great your net take home pay as one of our employees could be. Simply click here so we can show you the money!
The amount you receive each month varies depending on what employee expenses you’ve actually put in for. Plus there is no set monthly pay day, because we don’t believe in hanging onto your money, we just pay out within 24 hours of your payroll coming into us.
Because as a Parasol PAYE employee your rights are fully protected - you get a proper contract of employment, which means all your admin, employment rights, insurance and accounts are fully taken care of and you pay your tax and NI contributions through the normal HMRC channels, without having to worry about IR35 regulations.
Our recently acquired sister company, ClearSky Accounting, is a limited company and contractor tax specialist that has over 12 years experience and shares the same values and great customer service as Parasol.
