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contractor questions

What are the main advantages of being an umbrella contractor?

The benefits of being employed by an umbrella company can be numerous and will vary depending on your individual circumstances. Continued employment status is probably the biggest advantage for most people and brings with it many benefits such as maternity/paternity leave and sickness pay etc.

What is the SDC test?

It relates to Supervision, Direction or Control or SDC as it is commonly referred to. It is important to establish whether you are subject to SDC as it will have an impact on the expenses you can claim. If you are expected to know HOW to do your work and if no-one has the right to tell you HOW to do it then you will probably pass the SDC test.

How does SDC affect umbrella contractors?

If you are subject to SDC (supervision, direction or control) then you are not able to claim expenses for travel and subsistence. You are however able to claim mileage between different sites and PPE etc.

If you are not subject to SDC then you are able to claim allowable expenses for travel and subsistence as well as all other legitimate expenses. However please be aware of the rules regarding how expenses can be reimbursed.

What are the rules re the reimbursement of expenses?

HMRC legislation states if your taxable pay goes up and down depending on the expenses incurred then the expenses should be taxed effectively removing the benefit. Mileage is however still allowed. Therefore, mileage can be paid weekly but all other expenses must be claimed at the year end to get the tax relief.

How can a contractor change from Umbrella to Limited?

Changing from Umbrella to Limited doesn’t have to be complicated or time consuming. Company incorporation takes less than 24 hours and all insurances can be issued immediately.

If you think this might be the right option for you then get in touch, our sister company Exchequer Accountancy Services can help with everything from the initial set up to ongoing support.

I’ve been told that I’d be better off financially if I operate as a PSC, is this the case for all contractors?

Not necessarily, there really is no one size fits all approach. For example, if you are on a lower hourly rate there probably wouldn’t be any financial benefit or if you are only intending to contract in the short term and intend to return to traditional employment it might not be worthwhile.

We recommend that you look at your own earnings, personal circumstances, future plans etc before reaching a decision on which approach will work best for you. We can help with this and are happy to talk through your options.

Can all Umbrella contractors set up as Limited?

In theory yes, any contractor could set up a limited company (unless you are disqualified from being a company director for example due to bankruptcy.)

However, the financial benefits generally start once you are earning at least £12 per hour and the potential benefits increase as earning increases.

If I set up a limited company will I need to consider IR35?

Yes, as an individual setting up as a PSC you will need to consider IR35 for each of your contracts.

As a Ltd contractor operating inside IR35 you will essentially be paid as PAYE and will only benefit from the flat rate VAT scheme.

If you fall outside of the IR35 test, then you will be entitled to claim all allowable expenses. This makes a PSC the most financially attractive option for individuals in this situation as does the dividend tax rate.

Who is ultimately responsible for ensuring I am compliant? – is it me, my recruitment agency or the umbrella?

The Recruitment Agency is responsible for ensuring they have a compliant supply chain but the situation is complicated.

In terms of liability, if you are operating as a PSC unless the agency forced you down this route then the agency can’t be held liable. Liability rests with the company director.

The important thing is to ensure you are well informed. Ask questions and do your research as in most circumstances it is ultimately the responsibility of the individual to comply.

I’m currently on an umbrella scheme, should I review this?

It makes sense to review how you are paid whenever your circumstances change. For example, if your hourly rate increases, the type of work you carry out changes or you become responsible for your own work.

I work in construction, is CIS a viable option?

Yes, CIS is a viable option for workers in the construction industry and is the preferred option for many of our workers in this sector. If you aren’t subject to SDC and work in construction then CIS could be the right option for you.

If this is the case then we can help with our CIS service.

Can my recruitment agency tell me what to do and which company to use?

No. Your recruitment agency should be able to present you with the facts and discuss the options. They will work with organisations like Exchequer to establish whether an individual worker is subject to SDC but when it comes to making a decision that should be up to you.