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IR35 and MSC Compliance
One of the biggest considerations for any contractor is IR35 as it has such a large bearing on the contract solution used. Get it wrong and you could land a massive back dated tax bill in years to come, definitely an unwelcome prospect! Another consideration should be given to the 2007 Managed Service Company (MSC) Legislation. In theory there should be no Composite Company operators in the marketplace but in practice rogue operators may still be going.With a PAYE Umbrella Company you can guarantee MSC and IR35 compliance as all contract income is paid through the Pay as Your Earn (PAYE) scheme. There is no need to worry about the Managed Service Company Legislation as the provider is operating compliantly and you will never face a dreaded IR35 Investigation.
IR35 and MSC Compliant Documentation
To prove the fact that you have used an IR35 and MSC Compliant Umbrella Company solution you should request and keep hold of all documents supplied by the Umbrella Company.A compliant operator will provide an employment contract detailing that income is to be paid in the form of salaried income subject to PAYE Income Tax and Class 1 National Insurance deductions and Payslips should confirm that salary payments have been made. If you are unsure of how payments are being made to you request for information from the provider. If you receive inadequate information or you find that profit payments are being made you should leave the provider immediately and request that the agency agrees contracts with another company.
Another important piece of documentation to back up the fact that you have received salary payments is an end of year P60. Only if you are still employed by the Umbrella Company at the end of the tax year will you receive this document from them. You receive a P60 from the company that you are employed with at the end of the tax year if you have been a salaried employee subject to income tax and national insurance deductions.
