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UK remuneration & taxation

In the UK, there are two main types of working status – you are either an employee, which we will call Standard employment or you are incorporated as part of a Limited Company. In both cases you are liable to UK Income Tax as well as National Insurance.

Standard employment


Most temporary and contract workers in the UK are employed by the company they are working for. Whether they are being paid weekly or monthly, both UK Income Tax and National Insurance are deducted by the employer before the employee is paid. This is known as PAYE (Pay As You Earn).

Once employed, you need to register with the Department of Social Security to obtain a National Insurance Number for taxation purposes. You will be required to show your passport and supply a letter from you employer (agent) as proof of employment.

Income Tax
The amount of Income Tax you pay is based on your Taxable Income. Your Taxable Income is the difference between your Gross Pay (total earnings) and any allowances against taxation - commonly your Personal Allowance (the amount you can earn before paying tax). Your Personal Allowance is allocated on a weekly basis for the purposes of calculating your tax liability.

  • The Personal Allowance for the tax year 2011/2012 is £7,475.00, so, if you are a single person, the first £7,475.00 is tax-free.
  • Basic rate 20% - £0 - £35,000
  • Higher rate 40% - £35,001 - £150,000
  • Additional rate 50% - over £150,000

From the 2010/2011 tax year, the personal allowance reduces where the income is above £100,000 by £1 for every £2 of income above the £100,000 limit.

National Insurance
National Insurance is a deduction that covers entitlements to a number of state benefits including a pension and free health care from the National Health Service (NHS). Both employers and employees are liable for NI and it is deducted at source. The weekly earnings brackets are as follows:

  • Up to £102.00 per week            Nil
  • £102.01 up to £817.00              12%
  • Over £817.00                            2%


Basic tax and NI calculations
If you are employed on a PAYE basis and wish to work out how much you will get after tax and national insurance has been deducted, for an extremely rapid calculation, based purely on you inputting a single income figure, visit:

Tax and National Insurance calculator
www.listentotaxman.com

Alternatively, the HM Revenue & Customs website (
www.hmrc.gov.uk
) offers tax and national insurance calculators which are very quick and easy to use.

However, the tax calculator does require you to know your tax code and the national insurance calculator requires you to know your NI category letter. If you have these to hand, go to (
www.hmrc.gov.uk
) and follow the instructions to get to the calculators.

Limited companies


A significant number of interim workers form their own limited companies, become directors of those companies and invoice their agency or the company using their services. The money is paid into their limited company's bank account and in effect does not belong to them. These company earnings can then be distributed in a number of ways including salary or dividends. This approach shifts the responsibility for deducting income tax and NI from the employer to the director(s) of the company, which can lead to tax advantages over PAYE, as certain operating costs are tax deductible and there can be NI savings depending on the level of salary versus dividends paid. However, both Income Tax and National Insurance must still be paid.

IR35


The tax and NI benefits of a temporary worker using a limited company have been brought into question by IR35. IR35 is legislation relating to what the Inland Revenue will accept as the proper use of a limited company. If the Inland Revenue decides that a person working through a limited company is really an employee who should be paying standard PAYE and National Insurance then the director(s) may face a claim for unpaid taxation. You should seek professional advice on this matter. For further information visit:
www.inlandrevenue.gov.uk/ir35


Managed service companies


As a result of recent government legislation, Barclay Simpson will not pay any contractor invoices from a Managed Service Company after April 5th 2007. For more information on this legislation please go to:

http://www.hmrc.gov.uk/budget2007/bn46.htm

In most areas of corporate governance there is a growing market for interim staff for both short and long-term assignments. Opportunities can be found in all sectors of the economy and demand is particularly high where companies are finding it difficult to recruit permanent staff or have new regulations to comply with. While the majority of opportunities are in London and the South-East, interim positions exist throughout the country at all levels, from entry level positions to director/head of department, across all areas of corporate governance.

 

To discuss interim opportunities, please contact

·         Andrew Whyte aw@barclaysimpson.com for Internal Audit

·         Alex Jozsa awj@barclaysimpson.com for IT Audit

·         Chloe Bailey cb@barclaysimpson.com for Risk Management

·         Owanate Bestman ob@barclaysimpson.com for Information Security

·         Peter Whyte pw@barclaysimpson.com for Compliance

 

Or alternatively call 020 7936 2601 to speak to a consultant directly.

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