Umbrella Company Glossary of Terms
Umbrella Company – A service company that enables contractors to receive payments, without the need of setting up and running their own Limited Company.
Timesheet – Timesheets are used to authorise time worked at your client site. Contractors will need to send signed timesheets to their agency and relay these details to their Umbrella Company so an invoice can be raised for payment.
Invoice – A payment request, detailing hours worked and rate, issued by the Umbrella Company, after timesheet details have been submitted by the contractor.
BACS – The standard bank transfer method (Bank Automated Clearing System). A BACS transfer takes 2-3 working days to clear in your bank account.
CHAPS – The same day payment method. (Clearing House Automated Payments System). A CHAPS payment ensures funds will clear in your account the same day that they are transferred.
IR35 – Government tax legislation that took effect in April 2000 to highlight contractors working as a ‘disguised employee’
HMRC – Her Majesty’s Revenue & Customs (formally the Inland Revenue) is responsible for collecting revenue for the government and policing current legislation to make sure companies are compliant.
P45 – An official record of taxable earnings and tax paid to date in the current tax year which will be supplied to you when you leave an employer. This should be passed on to your new employer.
P60 – An official record of your total earnings and tax paid for a particular tax year, issued by your current employer at the end of the financial year.
P46 – A P46 form should be completed if a P45 is not available. Your employer can use the P46 to determine which tax code to use when processing your payments.
Gross Pay/Income – Your earnings before any deductions for tax, national insurance and any other statutory payments.
Net Pay/Income – Your earnings after tax, national insurance and any other statutory payments i.e. the amount you receive
Self-billing – If an agency are self-billing, this means they pay directly from the timesheets you submit rather than from the Umbrella Company’s invoice.
MSC – An MSC (Managed Service Company) is a third party service that makes dividend payments to its contractors. This type of service became illegal with new legislation introduced in April 2007.
Dispensation – A dispensation allows Umbrella Companies to process your expenses without having to record them on a P11d form. Without a dispensation, the Umbrella Company would need to ask to see receipts for every expense you claim. It does not dictate the expenses that you are entitled to claim.
Self-assessment – If you have received earnings outside of PAYE, you will need to complete a self-assessment form and declare your earnings from the previous tax year to HMRC.
Expenses – Certain costs that you may incur, as a direct result of your contract, can be claimed as an expense and offset against your tax liability.
PAYE – Pay As You Earn is method used to determine the tax and national insurance contributions due on your weekly/monthly earnings.
