Umbrella terms you need to know

If you’ve recently made the jump to contracting, you’re probably a little bit overwhelmed with the sheer amount of jargon out there. Not to fear, Mint are here to explain the key terms and acronyms home to the umbrella world… 

Umbrella provider 

Starting with the basics, an umbrella provider acts as a middleman between you, the contractor, and your end client. Once you join an umbrella, you become a full-time employee of that company and also receive employee benefits such as access to pension schemes and holiday pay. Check out our FAQs for further information. 

IR35 

IR35 is a tax legislation which ensures self-employed people such as contractors are paying a fair amount of tax and national insurance. It is designed to prevent workers from setting up their own companies primarily to take advantage of tax benefits while performing tasks that would otherwise make them employees if they were working directly for a company. HMRC decides whether a worker falls under IR35 – if so, the client they are working for is responsible for making tax deductions and National Insurance Contributions. 

PAYE

Pay As You Earn (PAYE) is used to collect taxes on your earnings before you are paid. 

BACS 

This stands for Bank Automated Clearing System and is the electronic transfer method for paying employees. 

Invoice 

A document given to the end client by the umbrella company that details how many hours the contractor has worked, along with their hourly rate.

Timesheet 

Timesheets serve as a way for contractors to track their work hours accurately and provide a basis for invoicing clients or employers for their services. This document needs to be signed by your end client in order for the umbrella provider to pay you. 

Self-Assessment 

A form which needs to be completed if you make money outside of PAYE. Used to alert HMRC of your additional income so they can work out what you owe in tax. 

Gross pay/income 

The money you make before tax and other relevant deductions are made. 

P11D form

Used to record any expenses given to employees (submitted to HMRC annually). 

Dispensation

An agreement with the client or employer that allows specific expenses to be reimbursed without the umbrella having to note them on a P11D form.

Pay illustration 

Offers contractors an estimate of their take-home pay after tax deductions. This should always be offered to you before you agree to work with an umbrella! Find out more in our blog post. 

We hope this article has been of use. If you’re looking to work with a complaint umbrella provider then Mint are here for you! Get in touch with our team via email at [email protected] today to get started.