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Confused by PAYE Umbrella terminology? Simplify's Jargon Buster will help you make sense of it all.

As with all industries there is a lot of different terminology that you might not have heard yet.  To simplify this jargon we have provided a handy guide to some of the words which you will hear when discussing Umbrella organisations.

"Overarching" Contract

This is a contract of employment that Simplify will give you, this will state what, whom and how you will work with us.

'Bacs' Payment

Bacs stands for Banker's Automated Clearing Services. This is a payment that the bank will process from Simplify into your account. This normally takes 3 days to clear.

24 Month rule

This is a HMRC policy that states that once you have been made aware (i.e you have a contract to state) or you have been based at a specific site for more than 24 months this is no longer deemed as a temporary place of work and hence you are not entitled to claim business expenses (hence reduce the tax you pay). This is deemed by the HMRC as irrelevant who your employer is, it is the location that is important. i.e. you can't change umbrella organisation to avoid this and hence continue to off-set expenses.

Administration Fee

This is the charge that Simplify Business deducts from your wages to cover the cost of processing your wages. i.e calculating and paying your tax, NI and off-setting your expenses as well as completing final year returns.

Simplify Business charge £15 per week (exc VAT).

Employers Liability Insurance

This covers you as an individual if you are made ill or injured through your works fault.

Expenses

Please refer to our expenses policies which illustrate which of your business expenses, that have been incurred due to your work commitment, that can be offset against your tax liabilities. Please note that these expenses are not paid back to you they are in fact offset against the amount of tax that you need to pay down to a minimum wage.

Faster Payment

This is a payment that Banks will process from Simplify into your account. This normally clears on the same day. At the moment there are still some banks who do not have this option available. Simplify do not charge for this option.

Gross Pay

This is the amount that you earnt before any deductions have been made in regards to income tax, National Insurance and other statutory commitments. The calculation will be your pay rate times the number of hours you have worked.

HMRC

Her Majesty's Revenue and Customs; formerly known as the Inland Revenue. They write ,police and uphold legislation concerning tax.

They have a right to request receipts for your expense claims for up to 6 years. If you are found to have claimed incorrectly you could be subject to a re-payment order, interest charges and a fine.

Holiday Pay

As an employee you accrue holiday in the same way that other employees do. There are two options of payment for this. 1) You claim your holiday every week 2) you set up a "holiday fund" (illustrated on your payslip) and claim when you are not working.

IR35

On 9th March 1999, the Inland Revenue issued a press release detailing how they were to close the loophole that allowed freelancers and contractors to avoid paying large amounts of tax and national insurance by using a personal service company, composite company or business partnerships. This press release was called IR 35, and the legislation it announced has generally been referred to as IR35 ever since.

The government identified contractors as 'tax avoiders', due to the tax saving benefits they enjoyed from working through a Limited Company/Personal Service Company, whilst their underlying status was clearly that of a "deemed employee" The IR35 legislation was implemented in April 2000.

IR35 has resulted in increased tax, NI liability and administration for those contractors using a Limited Company IR35 made the use of Umbrella Companies significantly more attractive and more recent "Legislation to tackle Managed Services Companies" introduced in the Budget 2007 increased the appeal of umbrella companies further.

MSC

MSC stands for a Managed Service Company. This is a company that provides the services of people to other companies. These are now illegal as the contractor avoids paying tax as they claim dividends from the company. Simplify is not an MSC.

National Insurance Contributions (NIC)

This is a government tax that applies to all income. This is allocated to pay for public funded items such as the National Health Service and your State Retirement Pension. Simplify pays this to the government on your behalf out of your wages.

Net Pay

This is the amount that you are paid once Tax, National Insurance Contributions and processing fees have been deducted. This is the amount of money that is paid into your bank.

P45

This is requested by your previous employer to the HMRC which details your earnings to date in the financial year with your personal tax code. This needs to be presented to Simplify as soon as possible after joining us. If you do not have a P45 we can provide you with a P46 which will be sent to the HMRC in order to allocate your personal tax code.

P46

If you do not have a P45 Simplify we provide you with a P46 to complete which will allocate your tax code. There is normally a delay in this getting through the system and you will probably be paying "emergency" tax until your tax code comes through.

P60

This is a statement that Simplify Business will issue you at the end of year (around April) which will record you tax and National Insurance paid over the previous financial year.

Payment Frequency

This is how often you are going to get paid. You will negotiate this with your recruitment agency.

Professional Indemnity Insurance

This insurance protects you against a claim made by your place of work. This allows compensation to be paid if you are found to be negligent or have made a mistake.

Public Liability Insurance

This insurance will cover you, if you are found to be responsible for personal injuries to a third party.

Self Assessment

This is a declaration made to HMRC which states what you have earned over the previous financial year.

Statutory Sick Pay

Simplify, as your employer, is legally required to pay you statutory sick pay after four consecutive days absent from work.

Timesheets

This is the record that you send to your recruitment agency detailing what hours you worked within a given time period. This is used by the recruitment agency to inform Simplify of what you have earnt.

Industry News

Conservatives pledge to review IR35
Mark Prisk, Shadow Minister for Business, has pledged that if the Conservatives win the forth coming election, a Conservative Government would undertake a fundamental review of IR35.

IR35 was introduced in 1999 and has caused confusion and uncertainty for Contractors ever since, with the possibility of HMRC investigations, potential repayment of Income Tax and NI, and even fines for those that fall foul of the confusing regulations.
Read More