Congratulations! You just secured a role as UX Designer. You’re starting your contractor assignment next week. You’re thrilled to show off your skills but you’re not clear as to what steps need to be taken in order to get paid by Salt as this is your first experience with contracting.
At the moment the only thing you are aware of is that you will not be employed by Salt but that you have two options: You can either set up your own limited company (also referred to by HMRC as ‘Personal Service Company´ and abbreviated as ‘PSC’) or you need to register with one of Salt’s approved umbrella companies.
We all know that getting the paperwork sorted is not as interesting and glamorous as the actual assignment ahead of you but getting it wrong can have negative repercussions for you, your business, Salt and our clients. Not to be taken with a pinch of Salt.
In this blog, David Korthals, Head of Compliance & Contractor Management at Salt, and Nicola Hayman, Legal Manager at Kingsbridge Contractor Insurance, will delve into the somewhat complex world of contractor compliance and will specifically shed some light on what you need to consider when working as a contractor for Salt.
For now, let’s keep it simple and say that you’ll be working in the United Kingdom.
Option 1: Working via your own Personal Service Company
Many contractors prefer to be in charge of their own business and therefore choose to operate through their own PSC. There may be all sorts of different reasons to work through a PSC whether it is the financial benefit or simply a lifestyle choice. At the same time running your own business can be time-consuming, increases your admin burden and also exposes you to more risk. It is, therefore, best to get professional advice from an accountant and a legal advisor before you decide to set up a PSC.
Here are a few questions we get asked frequently:
a) How quickly can I set up a PSC?
Quickly – within a few hours if need be. Salt has a good network of accountancy providers who can help you with setting up a limited company, getting your accounts set up online, managing your bookkeeping, assisting with tax issues and thus ensuring you stay compliant.
b) Which company documents have to be provided to Salt?
You need to provide us with your certificate of incorporation, bank statement, VAT certificate (when VAT registered) and proof of Professional Indemnity/ Public Liability and Employers’ Liability Insurance (if applicable). We will also ask for additional details like ID, National Insurance number and other documentation if requested by our client. This information falls under the definition of personal data so the GDPR will apply. If you want to know more about this, please check our data privacy policy. All this information is also outlined in our Contractor Welcome Pack which contains everything you need to know about our onboarding, timesheet and payment process. Nothing in your inbox? Please email contract@welovesalt.com and we will happily (re-)send it.
c) Why do I need to provide Salt with a bank statement?
Salt needs to check if your PSC is the valid account holder of the business bank account which you have nominated for payment as we do need to ensure that we transfer money into the right company account that we have a contract with. We are not interested in your balance and it’s perfectly legitimate to hide that information. Alternatively please do send us an opening letter from your bank.
d) What is IR35?
IR35 is the name given to tax legislation in the Income Tax (Earnings and Pensions) Act 2003. It was originally introduced in 1999 to deal with alleged tax avoidance via the use of a PSC. Under the current regime[1] in the private sector, you would have to determine whether you work ‘inside or outside’ IR35 when filing your annual Self-Assessment Tax return.
IR35 ensures that you are subject to equivalent employment tax rules as directly engaged employees if the reality of how you carry out the work is akin to employment. If you work ‘inside IR35’ your PSC must account for National Insurance Contributions and income tax (through the mechanism of PAYE[2].). To be considered outside of IR35 you must be operating as a genuine (independent) business. Both the written contract and working practices (the day-to-day working relationship between you and your client) should be reviewed to determine the IR35 status.
Remaining outside of IR35 usually revolves around four main criteria:
- Control
- Does the client[3] have control over you?
- The client should not be dictating what work you undertakes and how you go about it.
- Substitution
- Are you able to send a substitute to carry out the work?
- The clients should have limited vetting control over the replacement.
- Mutuality of obligation
- Does the client have to provide work, and are you obliged to accept and complete the work?
- Financial risk
- Will you incur personal financial risk as a result of the performance of the work duties?
If it appears that you work under the control of the client, if you are not entitled to provide a substitute and are not able to determine your own working hours, HMRC may classify you as being ‘inside IR35’.[4]
Before you go on site we highly recommend that you seek advice to establish which tax regime applies. We are more than happy to acquire the relevant details from our client if you need more info on your working conditions. Please email contract@welovesalt.com and we will help you further.
e) Company insurance – is it really necessary?
Absolutely. Especially if your contract is in the digital industry, it’s almost unheard of that our clients would not wish contractors to be insured for risks associated with (cyber) incidents. If your actions lead to anything being damaged (for example as a result of transmitting a virus) or anybody being injured it is essential that your company is insured, as it may result in a costly claim being made against your business. Likewise, if you give our client any advice or complete any work for them that leads to them losing money, they may bring a claim against you. In such a situation, having insurance in place could be what keeps you in business.
It is also worth noting that if you have deemed yourself to be working ‘outside IR35’ business and professional indemnity insurance would likely be an indicator of behaving and acting like a ‘real business’.
To ensure that your business is protected financially and that you are complying with the requirements of our clients, all our PSC contractors need to have suitable insurance (£1 million coverage for both Professional Indemnity and Public Liability) in place at all times.
Salt has partnered up with Kingsbridge to offer insurance at a competitive rate. Should you need to arrange cover, you can get a quote by calling Kingsbridge on 01242 808740 or online at kingsbridge.co.uk. For further information please click here.
Option 2: Working via an umbrella company
This is a solution for contractors who do not like the hassle of running their own business or who are not keen to face any IR35 related risks. The umbrella company will employ you and deduct PAYE. Therefore, you will have access to employee benefits that everyone in permanent employment is entitled to include sick pay, maternity pay, paternity pay, annual Leave etc. Salt will pay your umbrella company, and they will pay you.
a) Which umbrella company should I work through?
There are many unscrupulous payroll companies who operate in the UK market and some of them have unfortunately been reported as they operate non-compliant models (e.g. offshoring or applying shady expenses policies). Since the inception of the 2017 Criminal Finance Act, recruitment companies are not only exposed to the risk of paying civil or administrative fines but may face the risk of criminal prosecution where they fail to have reasonable prevention procedures in place to prevent the facilitation of tax evasion. Salt, therefore, has put together a list of approved umbrella companies who have been vetted by both Salt and/or accredited by recognised industry bodies. A list of approved umbrella companies can be found in your Salt Welcome Pack.
b) I want to work with an umbrella company, not on the approved list. What needs to be done?
Email contract@welovesalt.com and we will advise you of the next steps. We are prepared to work with umbrella companies who are not on our Approved Supplier List, however, they need to be fully vetted before we can work with them.
c) What documents do I need to send?
Identity documents, National Insurance number and referee contact details (when applicable). Your umbrella company will send across their company documents.
d) I need more info. Who do I need to contact?
We hope the above information is useful as it covers the most frequently asked questions. However, should you have any further queries please email contract@welovesalt.com or call David Korthals, Head of Compliance & Contractor Management on +44 (0)207 928 2525.
Hopefully, you will now find the onboarding process a bit easier. Good luck with your assignment!
[1] Under the proposed reforms for IR35 in the private sector the responsibility to determine your tax status will shift to the end user who needs to apply reasonable care when making this determination however the proposed legislation will not enter into force until April 2021.
[2] The Pay As You Earn (PAYE) system is a method of paying income tax and national insurance contributions.
[3] The terms refers to the end user of the technical services provided by your business. For the avoidance of doubt, Salt, the employment business, is not the client.
[4] For more information about the IR35 test, please seek professional advice from an accountant/ legal advisor. HMRC has also published info: https://www.gov.uk/guidance/ir35-what-to-do-if-it-applies.
If you’d like to find out more about Kingsbridge Contractor Insurance, visit their website.
