Faster Payments – Coming Soon
When it comes to choosing a payroll provider for your contracting services one of the main considerations is how quickly will you get paid? We all work to get paid and with most of us living a life that involves standing orders and direct debits the sooner we can get funds in the better.
The great news is that the UK Banking Industry is introducing a new system that will significantly speed the whole process up, where as you have to pay a fee for a CHAPS payment to get a same day credit there will soon be no need. Faster Payments Service will allow almost instant (at worst up to 2 hours after a payment instruction has been issued) inter payment between banks that have signed up. Eventually it is hoped that all UK banks will jump on board.
Faster Payments goes live on the 27th of May 2008, following that there will be a period where some banks are still joining the system. During this period if one of the banks involved hasn’t joined then a standard 3 day payment cycle will still be in use. The moral of all this is this, in order to get your pay on the same day for free after the 27th of May, make sure that both your bank and your payroll providers bank are signed up to the Faster Payments Service.
Contracting Under An Umbrella Company
Looking For A Tax Efficient Umbrella Company? We May Just Have The Right Payroll Solution For You!
An Umbrella service or company acts as a in-between for your contracting services. Essentially you enter into a contract with the Umbrella company that makes you a PAYE employee. Your end client or representing agent then also enters into a contract with the Umbrella for your services, they pay the Umbrella Company which then pays you as an employee.
Benefits Of Using An Umbrella Company
For the cautious contractor an Umbrella Company is very easy to use, all tax and NI is deducted before you get paid, you are a PAYE employee. You need do nothing more than send send in timesheets and expense claims and wait to be paid by the Umbrella.
The Downsides Of Using An Umbrella Company
With simplicity comes expense, unfortunately operating under an Umbrella Company is the most expensive way of working in terms of both income Tax and NI.
Employee Benefit Trusts
Unsure About EBT Schemes? There is a Much Better Payroll Solution Available!
With an EBT Scheme you are the employee of an offshore company and will pay normal UK P.A.Y.E. on your income from the company. The salary offered will usually be much less (hence less Tax and NI) than the amount the offshore company receives from the invoices for your services whilst contracting. In being the employee of the offshore company you are eligible to participate in the Employee Benefit Trust which makes payments to company employees, this is quite legitimate and is seen as a way of rewarding key staff. EBT payments are based on the profit the company has generated from employing you – effectively this is the difference between the amount invoiced for your services whilst contracting and the cost of employing you (your basic salary). For legal reasons to remain free from taxation these payments from the Employee Benefit Trust cannot be guaranteed. This is where the risk with EBT schemes is.
The EBT route has been in use for many years during which there have been several changes in legislation attempting to block this option but many of the offshore companies that offer an Employee Benefit Trust scheme have modified their procedures to remain within the law. It is still essential to review the legal opinion of any company offering an EBT pay scheme for contractors.
