It’s an often used quote that the only two certainties in life are taxes and death. And famously, that great bootlegging villain, Al Capone got put away for tax avoidance since the authorities couldn’t pin anything else on him.
We may not be able to get away with tax avoidance and arguably that is one of the reasons the EU struggles. In Germany, Holland and other lowland countries, tax avoidance is deeply frowned upon.
On the other hand there are some nations where it is a practiced art form and people congratulate each other for doing this. Unsurprisingly, these are the countries that need bailing out.
We may condone tax avoidance but what we can do is use the rules to minimise payment. Very few PAYE employees can rattle off their Tax code and yet this is how their proportion of tax is measured.
When it comes to contract workers it can be difficult for them to work out their contributions from their pay.
Farming it out to some contractor payroll services can not only take away that pressure but with people with a knowledge of all the expenses allowances and other perks, can make this very cost effective.
The construction business along with IT specialists are very often working within a company and other fulltime PAYE employees have no idea. Having worked in the IT business as a contractor the uncertainty of the period of work was sweetened by the generous payments.
In most cases any sole trader or self-employed CIS should have formed their own limited company. The company is allowed expenses an individual may not be able to claim.
It is clearly in the interest of anyone in this position to have some professional payroll service that understands all the implications of self-employment.
A CIS umbrella allows contractors to claim the usual benefits of sick pay, maternity leave and full holiday allowances.
For builders and IT geeks it’s far better to let some professional accountants and tax experts take the strain of working this out.
For contractor payroll services http://www.aogresources.com/
When it comes to administrating the PAYE system within your business, you have three main options. First, you can choose to undertake the PAYE in-house, either doing it yourself or hiring/using an existing employee. Secondly, you can choose a PAYE accountant. And, thirdly, you can choose an umbrella company.
Each choice has its own merits and pitfalls. Today, we are going to explore each in turn, giving you both the advantages and the disadvantages of each. This will help you to decide which is the best choice for you.
Doing It In-House
In the past, it was much harder to conduct PAYE in-house. Even as late as the early 00s, we were still using paper and books to work out various contributions. It was a huge pain. Nowadays, we can make use of software that makes it easier to carry out. Here, you simply enter the employees’ tax code, national insurance number and letter, and the amount that they have been paid and the software makes the calculations for you. It is a bit more complicated than this, but this is the general gist.
Choices of software:
• HMRC – BASIC PAYE tools. As the name implies, this provides all the basic things that you need to do in order to calculate PAYE contributions. It works best for small companies with few PAYE issues, such as director’s contributions.
• SAGE – a paid for package, which includes more of the complex calculations.
• Intuit/QuickBooks - a paid for package, which includes more of the complex calculations.
When choosing your PAYE software, always use one that is recommended by the HMRC (both Intuit/QuickBooks and SAGE are recommended).
Conducting your PAYE yourself is relatively straightforward, but if you have never done it before, there is a relative steep learning curve.
Here, if something goes wrong, it is likely to result in a penalty and perhaps interest on any outstanding amounts.
Using a PAYE Accountant
Here, the accountant is one of your creditors. Usually, they conduct your PAYE and payroll once a month and you pay for their services as you would any of your other creditors. We would caution you to ensure that you choose a quality, and experienced, accountant. Be sure to research the company thoroughly before deciding to accept their services.
The main advantage in using a PAYE accountant is that you are almost guaranteed that they know exactly what they are doing. It is much less likely that they will make costly mistakes, and if they do, they are likely to reduce their bill to reflect their mistake.
Another advantage in using a PAYE accountant is that they understand how to take advantage of various schemes and options, and can help you save money in places that you wouldn’t be able to do yourself without extensive knowledge of accountancy.
Using an Umbrella Company
When you use an umbrella company, they incorporate umbrella PAYE. This means that they take all the liability of PAYE and that effectively, they employ the people who work for you. They will charge you for the service, and in addition will require that you pay the relevant NI and tax contributions.
Aside from this, they usually offer the same services as an accountant. Again, we would caution you to thoroughly research your choice of umbrella PAYE.
We hope that you have learned something of value by reading this article. If you would like to learn more about umbrella companies, then please visit our website.
Being a contractor is often hard work. You have to find clients, manage projects, and then deal with all the legal issues, such as using the correct means of documenting tax and National Insurance. It can be daunting, particularly if you have no experience in running a business or managing your own accounts.
One solution to these problems is to use the services of an umbrella company, rather than registering your work as a business (regardless of structure: sole trader, limited liability company, partnership, etc.). They effectively act as the business, and you become their client.
Clearly, the biggest disadvantage in this is that you will not retain all of your profits. Instead, you will need to pay the contractor umbrella for their work. However, unless you chose to undertake the work yourself – which is a lot of hard work – you would still need to pay an accountant, bookkeeper, and credit controller.
On top of this, if you choose to pay accountants, etc. you are liable for mistakes that they make. For example, if your accountant under calculates your PAYE contributions, you are liable to make these repayments. Unfortunately, you might have spent the money elsewhere, and this therefore leads to problems with cash flow, and in the worst circumstances, to having to declare bankruptcy. With an umbrella company, you are liable, but not directly so. It is unlikely to put you out of business.
So now, you are surely starting to appreciate the value in using an umbrella company to carry out your formal business requirements. Below, you will find a list of other key advantages:
• Less legal liability and responsibility than with a limited company.
• Less time spent on administrations tasks, such as tax and PAYE, leaving more time for spending on the work-side of your business, i.e. where the profit is.
• No need to take the time to set up a company when you land a big contract – you can sign up straightway to an umbrella company.
• No worries about being caught out by certain types of legislation, such as changes in the way we pay Corporation Tax.
• Ability to take on shorter contracts, without the risks of owning a limited business for the entire year. Formal accounts run from year to year, so a contract of only a few months can be a huge pain.
• The ability to work flexibility between permanent employments. You do not have to take the time to start a business, with everything that entails.
• The ability to run a business, even when you may be subject to certain restrictions. For example, certain types of visa preclude you from setting up a limited company.
As you can now appreciate, you can find many advantages in using contractor Umbrella Company. The only downside really is the cost. It’s not that they’re particularly expensive. It’s simply that the represent a cost that you would not have were you to carry out the work yourself.
Would you like to learn more about umbrella companies? If so, please visit http://www.aogresources.com/