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Compliance & IR35

Compliance 

Cool Company is one of the most trusted umbrella companies in the UK, offering our contractors total confidence that they are compliant with all legal requirements set by HM Revenue and Customs (HMRC).

Compliance can be a complex subject for many new contractors. Here are some key pieces of information you should know.

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Employment Status

There are several categories or statuses for individuals working for themselves in the UK. They include:

Umbrella Companies

An umbrella company is an intermediary business that provides contractors with a service that manages their tax and national insurance payments obligations. Contractors operate as employees under umbrella companies and are provided with access to all their rights under the Employment Rights Act 1996.

Many contractors prefer using umbrella companies over other options because they allow for a greater amount of flexibility without the responsibility of running a limited company.

Umbrella companies offer contractors the security of being an employee with the freedom of running their own business. It is an ideal solution that meets all the legal requirements set by HMRC, offering security and freedom to contractors so they can focus on their clients and grow their business.

Pay As You Earn (PAYE)

Pay As You Earn (PAYE) is the HMRC system that collects Income Tax and National Insurance from employment.

Employers normally have to operate PAYE as part of their payroll through deductions made from the salaries of employees.

PAYE Income Tax Rates 

The following table from Gov.uk shows the tax rates paid in each band if you have a standard Personal Allowance of £12,500.

PAYE tax rates 1
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Umbrella vs PAYE

Choosing to use an umbrella company over PAYE can have significant impacts on a contractor’s time and resources. The differences between the two should be carefully considered before making a decision. Click here to learn more about why an umbrella company may be a better choice vs. PAYE.

Limited Company

A Limited Liability Company (also known as a Personal Service Company or Ltd. Co.) is a registered business in the UK. It requires registration of the business name and registration for VAT tax (depending on the amount of revenue).

Running a limited company carries many responsibilities and administrative obligations. Click here to learn more about the benefits of an umbrella company vs. a limited company.

Self-Employment

Self-employment refers to a work status in the UK whereby an individual is registered with HMRC and completes taxes annually via a self-employment tax return.

Some complications may arise for contractors where self-employment is concerned. Click here for more information on self-employment.

IR35

IR35 refers to tax legislation in the UK that is designed to prevent tax avoidance from individuals receiving payments from clients through an intermediary such as a limited company. The laws were created due to issues with individuals using these intermediaries for the purpose of avoiding higher taxes.

IR35 rules concerning the status of a contractor can be complex. To find out if you are inside or outside IR35, click here to read our IR35 guide.

Employer National Insurance

Employers National Insurance is a government program that requires all employers to pay contributions for employee benefits and state pensions. The Gov.uk website outlines the classes and payments for workers based on their earnings. Contractors earning more than £183 a week that are under State Pension age have their deductions automatically deducted by their employer.

While permanent employees usually do not see this contribution on their payslip, contractors that work through umbrella companies will see this deduction.

Any questions? View our helpful FAQ section for more details.

Let the Experts at Cool Company Take Care of Compliance

Whether it’s IR35, tax legislation, National Insurance or Employment Protection, Cool Company is here to help you sort out all administrative matters so you can focus on your assignments.