Auto-enrolment refers to the legal responsibility of employers to provide a pension scheme to their employees. Employees are ‘auto-enrolled’ to a pension scheme if they earn over £10,000 a year and are aged 22-68 (the current State Pension age).
The Agency Workers Regulations (AWR) provide agency workers with the same employment and working conditions as direct employees once they have been employed for 12 weeks in the same job or role.
Declaring bankruptcy is a legal process that allows businesses (or people) with outstanding debts to partly or entirely reduce what they owe to their creditors (the businesses or people that are owed money). It is different to insolvency (see below).
Business Asset Disposal Relief (BADR) is a type of tax relief on Capital Gains Tax. It was previously known as Entrepreneurs’ Relief before the 2020/21 tax year.
A business plan outlines the purpose of a business, including target markets, strategies and financial forecasts.
The Check Employment Status for Tax (CEST) tool is used by end clients to help determine a worker’s employment status for tax purposes. The tool was built by HMRC (see below).
The Construction Industry Scheme (CIS) allows contractors to deduct the relevant taxes from subcontractors’ wages. These deductions are treated as advance payments of a tax bill.
Contracting is a way of working. As a contractor, you’ll work through your own limited company on particular jobs (or contracts) and clients of your choice.
A Company Registration Number (CRN) is a reference number for a limited company. It’s a unique string of numbers and letters issued by Companies House to each new company that is formed.
A dependent contractor is a subcontractor who carries out work for a company in a manner that reflects employment, but where the worker isn’t provided with employment rights; informally, a gig-economy worker.
Disguised employment is a form of tax avoidance (see below). It refers to workers who fulfil the same role as permanent employees, but are not employed directly or permanently.
Instead, the worker is hired through a limited company which receives the payment. IR35 (see below) was introduced to combat this.
Dividends are the sharing of a business’s profit among shareholders. Limited companies (see below) can pay dividends to shareholders (typically its directors), for example. Dividends are subject to different rates of tax than regular earnings.
A dormant company is not actively trading and has no source of income. Dormant companies are subject to different filing criteria than trading ones.
Earnings Before Tax is one way of measuring how a company performs financially. EBT is a business’s financial position before taxes – such as Capital Gains Tax – are paid.
Legitimate expenses are those incurred in the performance of your job, like travel to or from a client’s workplace or the cost of overnight stays, including food and drink.
The Freelancer and Contractor Services Association, or FCSA, offers robust auditing and accreditation for compliant umbrella companies.
The General Data Protection Regulation (GDPR) is a comprehensive, Europe-wide policy for handling personal data which came into effect in 2018. GDPR introduced stringent new measures around how businesses could use and handle customer or personal data.
Your gross pay is what you earn before any deductions (like income tax or pension payments) are made.
The government department responsible for collecting taxes and ensuring tax compliance: His Majesty’s Revenue and Customs (HMRC).
Insolvency refers to a business (or person) that is unable to pay its debts.
An invoice is a request for payment for services provided (or goods sold). For example, a self-employed worker will invoice an end client for work carried out.
The ‘off-payroll working rules’ (often just referred to as IR35) are in place to prevent tax avoidance by independent workers who operate under disguised employment (see above).
iXBRL is short for Inline eXtensible Business Reporting Language. This method of reporting Corporation Tax liability to HMRC is generally performed ‘behind the scenes’ when you submit your Company Tax Return.
Contractors often form their own limited company (often abbreviated to Ltd or referred to as a Personal Service Company), providing their services to clients through this.
Liquidation is the process of closing down a company that you no longer wish to be involved in the running of. Members’ Voluntary Liquidation is only available to you if you’re solvent (see below).
Managed Service Companies (MSC) are a type of tax avoidance (see below) scheme. These companies are typically managed by an accountant or other financial advisors, with the director having little – if any – control over how this business is run.
Making Tax Digital (MTD) is a programme by HMRC (see above) that improves business tax reporting and digitises the tax system.
Mutuality of Obligation (sometimes referred to as MoO) is one of the critical tests of IR35 (see above). It refers to the reciprocal nature of employment.
This means the obligation for workers to accept work and the obligation for the employer to pay for that work. In a genuine contractor and end-client relationship, MoO does not exist (meaning there is no disguised employment; see above).
Your net pay (or take-home pay) is what you’re left with after any deductions have been made. Deductions will include income tax and national insurance as well as pension contributions
A P11D form is sent by your employer to HMRC (see above), and details any benefits-in-kind you receive. Your employer might also provide you with a P11D at the same time that they send one to HMRC.
A P45 is an official document that workers are issued by an employer to an employee when that employee leaves the company.
It will detail how much taxable income that worker has earned and how much tax they’ve paid in the tax year in which the P45 was issued, and must be given by the worker to their new employer.
The P46 is no longer in use; it has been replaced by the Starter Checklist (see below).
Previously, a worker without a P45 (see above) had to complete a P46, to ensure they paid the right amount of tax
A P60 shows how much tax a worker has paid in a given tax year. You’ll be issued a P60 each tax year, and you’ll need it for reclaiming tax if you’ve paid too much.
Unpaid parental leave is a legal right for employees who have worked for their employer for a year or more.
Each parent is entitled to take up to 18 weeks of unpaid leave, in one-week blocks (up to a maximum of four blocks each year) per child, every year up until the child turns 18.
Pay As You Earn (PAYE) is how HMRC (see above) recovers taxes from permanent employees via the payroll (see below).
Payroll refers to both the overall wage bill of a company and to the process of ‘running payroll’ or paying the staff who are due to be paid.
A Preferred Supplier List is what it sounds like: a list of suppliers – either of goods or services – that have been pre-approved by a business for procurement purposes. Recruitment agencies will have a preferred supplier list of umbrella companies (see below), for example.
A category of business insurance, Professional Indemnity Insurance protects its holders from claims for loss or damage, made either by third parties or by clients, as a result of negligence on your part (whether you provided services or advice).
A retroactive date is a point in time from which you have held Professional Indemnity Insurance (see above). Any claims made after your retroactive date will be covered by your insurance policy; any claims made before the retroactive date will not be covered.
This refers to Section 336 of the Income Tax, Earnings and Pension Act (ITEPA) 2003. Employees can claim income tax relief on expenses provided to them by their employer via S336 ITEPA.
Self-Assessment is how self-employed workers report their taxable earnings and pay taxes to HMRC (see above).
A sole trader is a self-employed worker who owns their business. Sole traders are responsible for any business losses.
If a company is solvent, it can meet all of its debts and financial obligations. Solvency is the opposite of insolvency (see above).
Statutory Sick Pay (SSP) is available to workers who are too ill to work and is the legal minimum rate; some companies may offer higher sick pay than the rate stipulated by SSP (currently at £99.35 a week for a maximum of 28 weeks).
Workers without a P45 (see above) for their new employer must complete the Starter Checklist, which gives the employer the necessary information for payroll (see above) purposes.
A Statement of Work (sometimes abbreviated to SoW) is a document that outlines the scope of a project and the deliverable elements that must be completed. Essentially, a Statement of Work is used as a project management tool to establish the requirements of a given project.
A Status Determination Statement (SDS) is a written statement that sets out a worker’s employment status and the rationale behind the decision.
HMRC (see above) uses the terms tax avoidance and tax evasion interchangeably. Both are considered illegitimate ways of reducing tax liability.
Your tax code is displayed on your payslip and tells your employer how much tax to deduct from your wages or salary.
The personal tax return is what self-employed workers fill in and submit to HMRC (see above) to report their taxable income via Self-Assessment (see above).
Trivial benefits are small tokens provided by employers to employees of little financial value (less than £50), including drinks or lunch on the company, for example.
An umbrella company acts as an employer for temporary workers, providing statutory protections and benefits to its workers. Workers are paid by the umbrella company.
Value Added Tax (VAT) is a tax added to most goods and services sold by VAT-registered businesses in the UK. A company must register for VAT if its taxable turnover exceeds £85,000 a year.
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