Click here to sign up instantly · Want to talk to us? Call us on 0845 600 3974.

Reference Guide

Reference Guide

Account Manager
BACS
Dispensation
Expenses
Gross Pay
Gross Taxable Pay
HMRC
IR35
IR56
Invoice
Legislation
Managed Service Company
National Insurance Contributions (NICs)
Net Pay
Overarching Contract
Pay As You Earn – PAYE
Payment Frequency
Pensions
Personal Tax Code
Professional Indemnity Insurance
P6
P11D
P35
P45
P46
P60
Rechargeable Expenses
Referrals
Remittance
Same Day Payment (CHAPS)
Self-assessment
Self-billing
Statutory Payments
Tax Week
Tax Year
Timesheets
Umbrella Company
Umbrella Company Fee
Value Added Tax – VAT
Visas and Permits
24 Month rule – Temporary Workplace

Account Manager

Joining MSL Forza gives you much more than just signing up with a typical payroll company. We understand you will have questions and want to discuss them with someone who takes the trouble to get to know you and your needs. So when you register with us you will have a dedicated Account Manager, who will deal with your queries personally and professionally.

Back to top

BACS

Short for Bank Automated Clearing System. This is one way of transferring money directly into your bank account. A BACS transfer takes 2-3 working days to clear – excluding weekends.

Back to top

Dispensation

A dispensation is granted by HMRC and permits umbrella payroll companies like MSL Forza to process your legitimate business expenses without the need for all receipts to be seen. More importantly, items covered by a dispensation do not have to be recorded on a form P11D.

Back to top

Expenses

Legitimate business expenses that have been incurred wholly, exclusively and necessarily in the performance of your duties can be offset against your tax liability while you work for an umbrella payroll company like MSL Forza.

Back to top

Gross Pay

Your total earnings, based on hours worked at your agreed rate of pay, before any deductions.

Back to top

Gross Taxable Pay

We are allowed to make certain deductions from your gross earnings, for example your legitimate business expenses and our umbrella company fee, to arrive at the amount from which your income tax and employee’s National Insurance contribution deductions are calculated.

Back to top

HMRC

Her Majesty’s Revenue & Customs – formerly known as the Inland Revenue – are responsible for the collection of taxes and enforcing tax legislation. MSL Forza uses HMRC-accredited payroll software and we have been granted an HMRC dispensation for legitimate business expenses and are fully-compliant with HMRC regulations.

Back to top

IR35

In April 2000 HMRC introduced Intermediaries Legislation, commonly known as IR35, to prevent contractors from working as what HMRC saw as ‘disguised employees’. Before IR35, both contractors and freelancers could reduce their tax and National Insurance liabilities by receiving payments in the form of dividends.

Back to top

IR56

IR56 is the legislation that HMRC uses to determine if an individual is employed or self-employed. It operates in conjunction with the IR35 legislation. It is important for you to establish your employment status so that you are taxed correctly.

Back to top

Invoice

This is a payment request from your umbrella company to your agency or client, which details the hours you have worked and your agreed rate of pay. An invoice can be sent electronically or on paper. VAT is added to the invoice total.

Back to top

Legislation

Legislation is a law or laws passed by a governing body, such as parliament in the UK.

Back to top

Managed Service Company

In April 2007 legislation was introduced to make managed service companies (MSCs) illegal. MSCs were a third party service provided by intermediary companies that paid their contractors through dividends instead of salaries. If you are employed by MSL Forza you will not be affected by this legislation as we operate fully under HMRC’s PAYE system.

Back to top

National Insurance Contributions (NICs)

Under the PAYE system, two types of National Insurance are charged against an individual’s earnings: employee’s NIC and employer’s NIC. If you are a permanent employee you have to pay the employee national insurance and your employer has to pay the employer’s national insurance. However, if you are paid through an umbrella payroll company it is you (the contractor) who has to pay both the employer’s NIC as well as the employee’s NIC on your contractor income. But as a contractor you can command a considerably higher rate of pay, which will more than cover this additional cost. The current rate of employer’s NIC for the tax year 2010/11 is 12.8%. This is payable on all earnings above £110 per week or £476 per month, with NO upper limit.

You must ensure that you give your umbrella company your correct National Insurance number. If a wrong number is provided by you, then your contributions will not be correctly allocated to you. HMRC collect this money to fund state health, benefit and pension services.

Back to top

Net Pay

This is the money paid into your bank that you are free to use as you see fit. It is your earnings after the deduction of income tax, National Insurance contributions etc .

Back to top

Overarching Contract

If you join MSL Forza, you will be given a particular contract of employment which is called an overarching contract. This contract will give you full UK statutory employment rights.

Back to top

Pay As You Earn – PAYE

PAYE is HMRC’s system for calculating income tax from an individual’s weekly or monthly earnings. The amount of tax deducted depends on a tax code which HMRC gives you. MSL Forza will calculate your income tax, deduct it from your gross taxable earnings and then pay the due amount electronically to HMRC on your behalf each month.

Back to top

Payment Frequency

You will need to negotiate when and how often you are paid with your agency/client. It is usually either weekly or monthly.

Back to top

Pensions

Pensions can be a minefield and we cannot stress how important it is for you to get independent financial advice before you sign up to any scheme. That said, pensions have always been a very efficient way of reducing your income tax and national insurance liabilities. If, for example, you pay tax at the higher rate of 50%, the tax saving on a pension contribution of, say, £5,000 per annum would be £2,500.

When joining an umbrella payroll company like MSL Forza you will have the opportunity to join our stakeholder pension. You will benefit immediately from a reduction in your PAYE and National Insurance liabilities, whilst at the same time you are taking positive action to put money aside for your retirement.

Back to top

Personal Tax Code

Every individual is assessed by HMRC and allocated a personal tax code. Your tax code will show the amount of income you are allowed to earn tax free each year. For example, if your tax code is 647L then you can earn £6,470 tax-free in a year. You just add a zero to the end of the numbers in your code to arrive at the tax-free allowance. The exception to this rule is if your tax code starts with a K. K codes are very different to a tax code that starts with a number, in that you have NO tax-free allowance. Instead, a zero is added to the end of the number and then this value is added to your actual earnings, your tax is then calculated on the increased value.

The tax code spreads your tax-free allowance out equally over the year if your code is on a cumulative basis.

Back to top

Professional Indemnity Insurance

Professional indemnity insurance provides cover for claims brought against the policyholder due to their professional negligence.

Back to top

P6

This is the form that the Inland Revenue will send us (your employer) if your tax code changes. It is the only authority we have to make any changes to your tax code. Any new code will be applied to your next scheduled payment.

Back to top

P11D

A form P11D is completed by your employer to declare to HMRC any benefits and expenses that you have received during the tax year. Benefit-in-kind tax is due on any benefit that is seen to increase your income, for example: a company car, private medical insurance and interest free loans etc. Your employer will work out the value of each benefit and record it on the form P11D and then submit it to HMRC. You will be given a copy of the form for your records. The form is only required if your earnings are above £8,500 per annum. You will also need to submit this form if you have to complete a self-assessment tax return.

An umbrella company like MSL Forza will almost certainly have a dispensation to cover legitimate business expenses, which eliminates the need to submit form P11D.

Back to top

P35

This form is completed by your employer at the end of the tax year. It is used to declare all payments made to you, together with details of income tax and National Insurance deductions.

If you are employed by an umbrella payroll company, you will never have to complete this form.

Back to top

P45

A form P45 is the form you are given by your employer when you leave their employ. If you lose this form then your old employer is not legally allowed to issue you with a replacement. It will show your gross pay and tax deducted in the current tax year. It also shows:

Your personal tax code
The company’s PAYE Reference Number
Your National Insurance number
Your leaving date
The tax month or week that your last payment was made
Student Loan deductions
If you have been paid on a Week1/ Month1 or cumulative basis

Back to top

P46

A P46 is the form that you will be given by your new employer to complete if you do not have a form P45. It is essential for you to complete this form to ensure you are taxed at the correct rate. It will ask you to declare your current circumstances, i.e.

Is this your first job
Have you been claiming Jobseeker’s Allowance
Do you have any other jobs
Are you paying off a student loan
Which statement you countersign will determine the tax code that can be applied to your earnings. Your new employer will then send this form onto your PAYE Tax Office.

Back to top

P60

A form P60 is a certificate of earnings that is produced at the end of the tax year, which runs from 6th April to 5th April of the following year. It will show a breakdown of the gross pay and tax deducted during your current employment and any previous employment for the year in question. It will give a breakdown of your National Insurance contributions, together with any statutory payments that you may have received i.e. Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay. It will also show any Student Loan deductions. In addition it will display your:

National Insurance Number
Works payroll number
Your address
Your employer’s address
Your employer’s PAYE reference
Your final tax code

Legislation states that your employer only has to provide you with a form P60 if you are still employed as at 5th April. For example, if you leave on 26th February then your employer is not obliged to send you a P60 automatically. However, you can request one to be sent to you. An employer can also produce duplicate copies of P60 should you need them. This is the form that you will need if you complete a self-assessment tax return, need to make a claim for Tax Credits or need evidence for a mortgage application etc.

Back to top

Rechargeable Expenses

You must ensure that your client/agency agrees to reimburse you for this type of expense before your contract starts. These expenses have to be included in our invoice to them for you to receive payment. The client/agency will almost certainly ask you to complete their expenses claim form. However, if this is not the case, you must complete an expenses claim form which MUST state clearly that the expenses entered are rechargeable expenses and not business expenses.

Back to top

Referrals

Like any service business, we’re only as good as our clients think we are. If we’re doing our job well and looking after your interests properly, we hope you will want to recommend us to your friends and associates. To thank you for such recommendations, we operate a referral scheme, which enables both contractors and agencies who recommend our services to other contractors to receive a very worthwhile incentive. The incentive is awarded when the recommended contractor has been working with us for a specific period of time.

Back to top

Remittance

If an invoice is outstanding your agency or client may send a written notification to us, confirming that they intend to pay the amounts shown on the invoice, this is known as a remittance advice.

Back to top

Same Day Payment (CHAPS)

A same-day payment ensures that funds will reach your account and be cleared for use the same day they are sent. Such payments can be referred to as Faster Payments or CHAPS (Clearing House Automated Payment System) payments.

Back to top

Self-assessment

If you have received earnings outside the scope of PAYE, or they exceed the higher earnings ceiling, you will need to complete a self-assessment tax return and declare your earnings from the previous tax year to HMRC.

You are obliged to declare all forms of income received for the tax year in question. If you are employed by MSL Forza and you are not a higher rate tax payer, you will almost certainly not have to complete this form. That said, HMRC has the right to select individuals at random to complete a self-assessment tax return, which can be done on paper or online.

Back to top

Self-billing

This means that your agency will pay your umbrella company directly from your timesheet and not from an invoice generated by us.

Back to top

Statutory Payments

Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay
Under your contact of employment with MSL Forza you are entitled to all the statutory payments shown above when and as appropriate, if you meet all of the qualifying criteria as set out in our terms and conditions.

Back to top

Tax Week

The tax year is broken down into tax weeks. The tax year for 2010/2011 runs from Tuesday to Monday. If you are taxed using a cumulative tax code you will be allowed 1/52nd of the annual allowance each week as your tax-free pay.

Back to top

Tax Year

This runs from 6th April in one year to 5th April the following year.

Back to top

Timesheets

A timesheet is used to record the hours you have worked so that you can be paid. This can be done either via our secure online portal or through your agency. Timesheets must be completed regularly and promptly, then authorised by us so that payment can be made to you.

Back to top

Umbrella Company

Also known as a service company. You will be employed by an umbrella company like MSL Forza under an overarching contract. Your umbrella company will calculate and deduct the correct income tax and National Insurance contributions under the PAYE system from your earnings. The only responsibilities you have as the contractor are to complete your timesheets and expenses forms punctually – then we take care of the rest!

Back to top

Umbrella Company Fee

MSL Forza will charge you a fixed fee, either weekly or monthly, as you prefer. Our fee itself is also tax and National Insurance-deductible. You will not be charged when you are not working and we will not even charge you a joining or leaving fee for coming under our umbrella.

Back to top

Value Added Tax – VAT

VAT is known as a sales tax and is added to certain goods and services. We have to add VAT to the invoice we send your client or agency. This amount is collected by us and paid to HMRC in the usual way.

Back to top

Visas and Permits

If you are entering the UK and you are not a citizen of the European Economic Area, you will need to prove that you are eligible to work here. A suitable visa or permit can do this, but applications have to be made to the Home Office before you can begin working for us or any other UK employer.

Back to top

24 Month rule – Temporary Workplace

Your workplace must be somewhere you attend for the purpose of performing a task for a limited duration, which does not exceed 24 months. If you enter into a contract for more than 24 months from the outset, under HMRC legislation you are not allowed to claim any expenses against that contract!

If you agree to perform full-time duties at a temporary workplace for, say, 15 months and after 12 months your contract is extended to 25 months, you are allowed to claim all expenses for the first 12 months but nothing after that!
Some umbrella companies will advise you that you can continue to claim expenses from the same assignment after 24 months if you leave your existing Umbrella Company and join them, but this is not true. HMRC’s 24 month rule applies to the site/location where you’ve been working and not the umbrella company you use, so beware!!

Back to top