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Contractor accountants are specialists who provide tax advice and accountancy services to independent professionals who work for themselves often via their own limited company. The contractor accountant can provide a range of accounting services to suit the individual needs and requirements, to generally include annual accounts, company tax returns, payroll, quarterly VAT returns, company secretarial matters, tax planning advice and liaising with HMRC amongst others.
Government departments often differentiate between employment agencies and employment businesses. The Department for Business, Energy and Industrial Strategy (BEIS) categorises employment agencies as those companies that find people permanent work, simply fulfilling a recruitment role. It defines employment businesses as those companies (often known as temping agencies) who are responsible for placing workers in roles with a client of theirs, usually on a temporary basis. Employment businesses are responsible for the payment of the worker and for dealing with employment rights such as annual leave.
An FCSA Accredited Member is a service provider – namely an umbrella employer, contractor accountant or CIS payroll provider – that has been independently audited to confirm that they adhere to the rigorous Freelancer & Contractor Services Association (FCSA) Codes of Compliance and a copy of the audit report is sent to HMRC for complete transparency.
The FCSA Charter sets out the minimum ethical standards and levels of conduct expected from the Freelancer & Contractor Services Association (FCSA) Accredited Members. All members of the FCSA must read and fully acknowledge that they agree with the Charter.
The Freelancer & Contractor Services Association (FCSA) operates best practice codes of compliance designed to ensure that its Accredited Members are providing compliant advice and/or employment supported by the highest level of professional and ethical standards. New applicants for Accredited membership are required to demonstrate how they adhere to FCSA’s Codes of Compliance, to provide the necessary supporting evidence as well as providing certain additional information. The declaration and information provided will be subject to independent testing by regulated accountants and solicitors. Appointed assessors are themselves tested by FCSA to ensure that they are experts with sufficient in-depth knowledge of the sector. FCSA Accredited Members must pass annual testing in order to retain their accredited status.
Her Majesty’s Revenue and Customs (HM Revenue & Customs or HMRC) is a government department responsible for the collection of taxes and National Insurance contributions, the payment of some state benefits, as well as other administrative duties.
IR35 also known as the “intermediaries legislation”. This piece of legislation to is designed to prevent tax avoidance for any contractor working for an end-hirer via an intermediary (i.e. a Limited Company or Personal Service Company). In a nutshell, it is aimed to stop contractors working as disguised employees and any assignments “inside IR35” or “caught by IR35” must make a deemed payment to HMRC roughly equivalent to the taxes that would have been paid had they been employed by the hiring company.
A Limited Company must be incorporated at companies house, have its own unique company registration number and is governed by the requirements of the Companies Act (and its own articles of association). There are three common types of companies Private Limited Company (LTD), Limited Liability Partnership (LLP) & Public Limited Company (PLC). A Limited Company is a legal entity in its own right and the owner is protected by limited liability (meaning the shareholders’ financial liability is limited to the value of their investment in the company).
This service (offered to freelancers by FCSA members) covers the primary support services needed to help an individual in business on their own account run their own limited company. It traditionally includes administrative support (invoicing, record keeping, and document administration), bookkeeping, accounting, production of business financial information, company secretarial services, production of required corporate returns and corporate and personal tax advice, together with legal advice and support covering employment status.
This term refers to any structure including a company that is based offshore (i.e. not in the UK) that offers services to UK recruitment agencies and/or freelancers.
Generally, companies that are incorporated offshore fall outside of the remit of HMRC, meaning, in some cases, even though they are engaging workers in the UK, the offshore entity is able to avoid paying the correct level of UK tax and National Insurance, resulting in a loss in tax revenue to the Exchequer.
Not all offshore companies use their location to avoid paying tax, but those that do place their workers, and the entire supply chain at risk of debt transfer under the Offshore Intermediaries Legislation.
Open book accounting involves companies publishing information whose availability is often restricted on the grounds of commercial sensitivity. FCSA’s approach to auditing Accredited Members involves open book accounting as a copy of the audit file is lodged with HMRC for full transparency. This principle is based on the view that transparency will lead to greater accountability and help the service providers sector and the Government to work closely and openly together in a relationship of mutual benefit.
Meaning ‘Pay As You Earn’, this term refers to the method of paying Income Tax and National Insurance Contributions (“NICs”) in the UK.
Your employer will deduct and pay your taxes to HMRC ‘as you earn’, i.e. with each payment your employer makes to you.
Where we refer to PAYE in the recruitment sector, often it refers to working as an employee of the agency, where the agency pays you directly for the work you undertake.
If engaged by a compliant umbrella company, the payments you receive will also be paid under PAYE, however, the assignment rate paid to the umbrella company by the agency should be increased in order for the umbrella to account for the employment costs it incurs, which the agency would pay directly if it employed you.
Is a ‘Preferred Suppliers List’ that recruiters will use to identify companies that they are happy to work with, such as specific umbrella companies, that that they have vetted, and deemed compliant.
With more and more legislative change giving HMRC powers to transfer debt throughout the contractual chain, it’s vital that recruitment agencies understand the difference between compliant and non-compliant providers and having a PSL allows the agency to closely regulate the type of businesses it engages.
This is another term used to define a limited company and is most commonly used with reference to a company that contains a sole director/shareholder that supplies services to an end hirer, often through a recruitment agency.
The PSC (or limited company) supplies the services of its worker, but is legally considered a separate entity to the worker, unlike those workers that operate as traditionally self-employed sole traders.
Workers that operate via their own PSC will often receive payment for their work through a mix of salary and dividends if working outside of the IR35 legislation, or just employment remuneration if working inside IR35.
This term is used to define self-employed people who run their business for themselves and take full responsibility for its success or failure. Unlike working through a personal service company (PSC), there is no separation in law between the worker, and the business. This means that if anyone decided to start legal proceedings regarding the work done, this case would be brought against the individual, in contrast to a worker who uses a PSC, where it would normally be the company facing the court case, instead of the worker personally.
A self-employed person has no statutory employment rights and will not ordinarily pay tax to HMRC until the end of the tax year, although some types of National Insurance may be payable during the year.
Service providers offer specialist tax, accountancy and administrative support, and advice for the professional freelance workforce. The specialism provides support to independent professionals across a variety of sectors, all of whom choose to operate as either independent businesses, limited companies, employed by umbrella companies or as self-employed individuals. The tax regulations and employment status legislation affecting professional contractors is complex and the service provider sector exists to support the flexible workforce in being compliant with their tax and legal obligations.
Umbrella companies employ contractors under the terms of a permanent contract of employment, meaning that the individual receives all 84 statutory rights and employment benefits whilst also having the flexibility to work for a series of different end-clients. The umbrella company provides employment benefits such as access to pension schemes, paid leave for holidays, maternity, paternity, sickness etc. The umbrella company is also responsible for the provision of appropriate insurance. The umbrella company also undertakes all of the necessary administration such as checking visas, invoicing the agency for any work undertaken, collecting payment and calculating the amount to be paid to the freelancers, ensuring that appropriate PAYE tax and NICs are paid to HMRC.