First time as an independent contractor? New to freelancing and need help with the contracting onboarding process? Working in the UK?
Salt has partnered with Knightsbridge to create a simple step by step guide to getting through the admin side of your contracting career. Read our contracting onboarding checklist to get everything in order quickly and effectively, so you can focus on getting your business off the ground.
We all know that getting admin and tax documentation sorted is not as interesting or glamorous as the scope of work ahead of you but getting it wrong can have negative repercussions for you, your business, and your clients.
Here’s a few options and instructions to help get started for independent contractors in the UK:
Option 1: Working as independent contractors
Many independent contractors prefer to be in charge of their own work hours and clients and therefore choose to operate through their own Personal Service Company (PSC) or limited company. There may be all sorts of different reasons to work as an independent contractor, whether it’s for 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 your own company.
Here are a few common questions our independent contractors in the UK ask frequently:
a) How quickly can I set up a PSC or limited company?
Quickly – within a few hours if need be. We advise working with a professional accountancy provider – although there are steps you can follow yourself if you have the time.
Salt, or any other recruiter you’re working with will have 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. See our contracting roles here or email us your CV at contracting@welovesalt.com.
b) Which company documents have to be provided?
If you’re working with a recruiter or with Salt, you will need to provide a certificate of incorporation, bank statement, VAT certificate (when VAT registered) and proof of Professional Indemnity or Public Liability and Employers’ Liability Insurance (if applicable).
If you’re working specifically with us at Salt, we will also ask for additional documents such as your ID, National Insurance number and other documentation that may be 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 view Salt’s data privacy policy.
All this information is also outlined in our Contractor Welcome Pack which contains everything you need to know about Salt’s contractor onboarding process, timesheet, and payment process. Nothing in your inbox? Please email contracting@welovesalt.com and we will happily (re-)send it.
c) Why do I need to provide a bank statement as part of contractor onboarding?
Salt, or any recruiter you’re working with, will need to verify that your PSC is the valid account holder of the business bank account for which you have nominated for payment.
These safety procedures help to ensure that we transfer money into the right company account that we have a contract with.
There’s no need to worry as your details will remain secure and we’re not interested in your balance as it’s perfectly legitimate to hide that information. Alternatively, please send us an opening letter from your bank.
d) What is IR35?
IR35 is the official name given to tax legislation in the Income Tax (Earnings and Pensions) Act 2003. It concerns off-payroll working rules and a set of tax laws[1].
The IR35 was put into place as part of HMRC’s efforts to try to stop companies and contractors from working together as employers and employees so they could avoid certain taxes.
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’ you or the umbrella company you work through 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. If you are deemed outside IR35 you will be recognised as self-employed for tax purposes and this means you will be responsible for making sure your personal and company taxes are paid correctly and on time.
Remaining outside of IR35 includes four main factors:
- 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.
If you’re working with Salt, we are more than happy to acquire the relevant details from our client if you need more info on your working conditions. Simply email contracting@welovesalt.com and we’d be happy to assist 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
An umbrella company is a company that independent contractors can join as an alternative to setting up (and working through) their own limited company.
When you join an umbrella, you become their employee. The umbrella acts as an intermediary between you and your recruitment agency and can help with administrative tasks such as accounting, tax documentation and payroll.
The umbrella company will also deduct Pay As You Earn (PAYE) which is the HM Revenue and Customs’ ( HMRC) system to collect Income Tax and National Insurance from employment. Therefore, you will have access to employee benefits that everyone in permanent employment is entitled to including sick pay, maternity pay, paternity pay, Annual Leave etc.
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.
At Salt, we have therefore 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 contracting@welovesalt.com.
Simply visit our contract jobs page on our Salt Recruitment website where you can browse through a variety of available positions from all around the world. We have a range of exciting opportunities across Consulting, Creative, HR, Marketing, Sales, and Technology sectors.
You can also keep in the loop by following us on LinkedIn, YouTube, Facebook, Instagram, Twitter and Spotify.
[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: Gov UK
If you’d like to find out more about Kingsbridge Contractor Insurance, visit their website.
To shape your future with Salt, a leading digital recruitment agency, send your CV to enquiry@welovesalt.com or use our search to find jobs. You can also keep in the loop by following us on Facebook, Instagram and Twitter.
