Section A – Payment Options Section B – Understanding the new legislation Section C – New Frontiers Statement of 11th May 2007
SECTION A – Payment Options There are four methods of payment available: 1: Pay As You Earn (PAYE) 2: Umbrella Company 3: Limited Company
Option 1 – Pay As You Earn (PAYE) This is how most permanent workers in the UK get paid. You would be paid by New Frontiers. Pros: - Simple: no hassle set up
- No ongoing issues: we collect all the tax and pay the government for you
- 100% legal
- Holiday pay
Cons: - You pay a ‘normal’ tax rate which may be higher than other payment methods listed below
Option 2 – Umbrella Company The law currently allows for you to join something called an umbrella company which will pay you for your work. There is a slight financial benefit to you in using this kind of structure they receive a VAT rebate and are able to pass some of the savings to you. You can also offset some business related expenses against your taxable income. Pros: - Extra income: Someone on £15 a hour without any expenses would receive approx £5 extra a week. You would receive more if putting through legitimate expenses.
- Even more income: If you are new to the UK and haven’t worked yet you can even claim your air fare and accommodation against tax
- Fully tax compliant: It’s totally legal - you pay PAYE & National Insurance
- Easy set up: it’s all set up the same day
- Easy ongoing accounts: you need to manage very little, it’s all done for you
- No ongoing costs
Cons: - Actual financial benefit could be minimal for some people and therefore not worth setting it all up
Option 3 – Offshore Limited Company New Frontiers do not recommend using an Offshore Limited Company – however we currently allow this option as this is offered by our competiors. This legal status of this option is under constant review and we would require you to sign this disclaimer. See our statement release on Friday 11th May 2008 below. Pros: - Easy set up
- Extra income due to tax benefits
Cons: - Government could produce further clarification on the law which specifically outlaws this kind of structure.
- Potential large tax bill for the temp at the end of the year
- Risk of the limited company ceasing trading meaning you are not paid
- Likley to be not offered by any recruitment companies by Jan 2008
- Customer service level may not be as good as you are used to
SECTION B – Understanding the Legislation The government brought in a new law on April 5th 2008 which outlawed temps being paid via Managed Service Companies (MSCs). They brought in this law to ensure that they collected the correct amount of tax for people working in the UK. Some offshore companies are claiming that they are not MSCs and therefore are not affected by the new law – allowing them to continue to process pay for temps. Some companies claim they are not a MSC for one key reason. They claim that they do not meet all 4 of the follow criteria set out by the government. They say they hit a, b, & c but not d. The government defined an MSC as follows: a) its business consists wholly or mainly of providing (directly or indirectly) the service of an individual to other persons,
What this means - Any company that assists temps by providing a limited company to work through is deemed to be providing the services of a contractor to an agency / end client
b) payments are made (directly or indirectly) to the individual (or associates of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services,
What this means - Any company that assists or controls payments made to a temp for services through a limited company
c) the way in which those payments are made would result in the individual (or associates) receiving payments of an amount (net of tax and national insurance) exceeding that which would be received (net of tax and national insurance) if every payment in respect of the services were employment income of the individual, and
What this means - Any temp that is being paid a minimum salary and dividend which is more than they would be paid if they were subject to PAYE and NI as an employee
d) a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals ("an MSC provider") is involved with the company.
What this means - A service provider who promotes and advertises the use of limited companies and helps the temp with this.
Some companies claim that do not fall into the criteria of d) as there is no company “promoting or facilitating” the use of their limited company. They claim that just ARE the company and no else is involved i.e. you can’t be involved with yourself. New Frontiers are unsure about the validity of this point of view. We appreciate that the law is unclear but have taken the view the such companies are possibly outside of the new law. We are pushing the government to clarify this statement. The full text can be seen here: http://www.hmrc.gov.uk/employment-status/draftchapter9.pdf Other information can be found here: http://www.hmrc.gov.uk/employment-status/legislation.htm back to top
SECTION C New Frontiers Statement regarding Managed Service Companies Date? The government brought in a new law on April 5th 2007 which outlawed temps being paid via Managed Service Companies (MSCs). This law was brought in to ensure that the Government collected the correct amount of tax for people working in the UK. This meant that companies who operate and manage companies for temps would not longer be allowed. We’ve always tried to do the right thing… We took legal advice and advised our temps on the 5th April 2008 that there were now only 2 acceptable ways of being paid; PAYE or via a Personal Service Company (a “PSC” - where you set yourself up as a company and hire an accountant to do your tax and accounts). At this time, other agencies are giving temps the option of being paid via certain offshore limited companies where they could earn more money for doing the same job. All the legal advice we received told us to avoid this kind of structure to protect ourselves and our temps as it could be seen as being not within the new law. Certain offshore companies claim that they are still within the law due to one specific technicality. We appreciate that the law is unclear but we had preferred to act within the spirit of the law to protect temps and ourselves. Offering the same options to you.. Unfortunately New Frontiers find ourselves in a corner as other agencies ARE allowing people to be paid this way so we want to you to feel that we are offering you the same options. Therefore, New Frontiers ARE now allowing non-UK temps to be paid via certain limited company structures as of today. If you are a non UK citizen and wish to join such a structure you should be aware there is a risk that you will not be paid by the 3rd party or may be required to pay a large tax bill should the Inland Revenue investigate your tax situation. We will therefore require you to sign a disclaimer (here), which agrees that you will not hold New Frontiers liable for any loss of income you may experience from choosing to be paid via an offshore limited company. Be prepared for change … Please be aware that the government may issue further clarification which may settle this issue one way or another, so please be prepared for changes in the future. New Frontiers will continue to seek 100% clarification on this and will let you know if the accepted legal interpretation changes. Please note that there is a good chance this structure will not be offered by any recruitment company from January 2008 onwards as agencies would then be liable for any unpaid temp tax. Our personal service to you…. We appreciate that it has been quite difficult and frustrating for some temps during the period of uncertainty . It certainly would have been the easy option for everyone to just follow our competitors in using certain offshore companies however we felt we had a duty to ensure you were protected. New Frontiers always try to do the right thing for our temps; protecting you and providing you with the most friendly and personal service available in the industry. Any questions? If you would like to speak to someone about your pay options please call our temps team on 08000 350 351. Alternatively, if you would be interested in attending a short evening seminar on your options, with drinks, please let us know. | 
