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Umbrella Glossary

Umbrella Company – An employment services company that enables contractors to receive payments, without the need of setting up and running their own Limited Company.

Timesheet – A timesheet is used to record the number of hours/days worked and is used by both Umbrella Companies and Recruitment Agencies. The Recruitment Agency will need a timesheet signed by the end-client to confirm hours worked before they will issue a payment and the Umbrella Company needs a timesheet to be able to generate an invoice to send to the Recruitment Agency.

Expenses – Certain costs that you may incur, as a direct result of your contract, can be claimed as an expense to offset certain tax liabilities.

Invoice – A payment request, detailing hours worked and rate, issued by the Umbrella Company, after timesheet details have been submitted by the worker

BACS and CHAPS payments - BACS (or “Banker's Automated Clearing Services”) payments take three working days to reach your account. A CHAPS (Clearing House Automated Payments System) payment reaches your account on the same day.

IR35 – Government tax legislation that took effect in April 2000 to highlight contractors working as a ‘disguised employee’

HMRC – Her Majesty’s Revenue & Customs (formally the Inland Revenue) is responsible for collecting tax revenue for the government and policing current legislation to make sure companies are compliant.

P45 – An official record of taxable earnings and tax paid to date in the current tax year which will be supplied to you when you leave an employer. This should be passed on to your new employer in order to put you on correct tax code.

P60 – An official record of your total earnings and tax paid for a particular tax year, issued by your current employer at the end of the financial year i.e. called statement of earnings.

Starter Checklist – A starter checklist form should be completed if P45 is not available. Your employer can use the starter checklist to determine which tax code to use when processing your payments.

Gross Pay/Income – Your earnings before any deductions for tax, national insurance and any other statutory payments.

Net Pay/Income – Your earnings after tax, national insurance and any other statutory payments i.e. the amount you receive

Self-billing – If an agency are self-billing, this means they pay directly from the timesheets you submit rather than from the Umbrella Company’s invoice.

MSC – An MSC (Managed Service Company) is a third party service that makes dividend payments to contractors. This type of service became illegal with new legislation introduced in April 2007.

Dispensation – This is a way of reducing paperwork for both an umbrella company and HMRC, by relieving the umbrella employer from having to complete P11Ds or P9Ds, and relieving HMRC from having to check individual cases.

Self-assessment – If you have received earnings other than through PAYE, you will need to complete a self-assessment form and declare your earnings from the previous tax year to HMRC.

PAYE – Pay as You Earn is a method used to determine the tax and national insurance contributions due on your weekly/monthly earnings.

National Insurance - National Insurance is a government insurance system which helps to pay for benefits – e.g., the National Health Service. It also helps to pay for your State Retirement Pension.

Overarching contract - A contract of employment that specify what, whom and how you will work throughout the relationship with your umbrella company.

PSL - A Preferred Supplier List is made up when an agency has researched umbrella companies (also known as doing a “due diligence” check), and consequently put together a shortlist to show their contractors.

Statutory Sick Pay - You become an employee of your umbrella company and like all permanent employees you are entitled to sick pay. Your umbrella company is legally bound to pay you statutory sick pay after four consecutive days absent from work. You should never let your umbrella company make you pay this yourself – as many do.


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