PAYE Umbrella
Limited Company
Umbrella Plus

Jargon Buster

We know that the world of contracting can be a daunting and sometimes confusing place. If you don’t know your IR35 from your elbow, we have produced a jargon buster for you to help.


24 Month Rule

This is a HMRC policy which states that once you have been made aware (i.e. you have a contract to state) you will be, or have been, based at a specific site for more than 24 months, this is no longer deemed as a temporary place of work and hence you are not entitled to claim for business expenses. HMRC deems it irrelevant as to who your employer is, as it is the location that is important. i.e. you cannot change umbrella organisations to avoid this and thus continue to off-set expenses.

Administration Contribution

Administration ContributionThis is the cost that Crystal Umbrella deducts from the invoice total received from your agency / client to cover the cost of processing your income. i.e. calculating and paying your Tax, Employers and Employees NI and processing your business expenses as well as funding the professional insurance package and payroll function.

BACS Payment

BACS stands for Banker’s Automated Clearing Services. This is a payment that the bank will process from Crystal Umbrella into your account and this normally takes 2 working days to clear.

Business Expenses

Please refer to the Claiming Expenses section of the website which illustrates which of your business expenses that have been incurred due to your work commitment can be claimed.

Criminal Records Bureau (CRB) Check

Workers in healthcare, security, teaching, social services and any profession involving contact with children, elderly people and other ‘at risk’ categories are required to have an up-to-date CRB check. This will ensure they have no criminal offences and are not listed on a sex offenders list.

Employee Benefit Trust (EBT)

Employee benefit trusts are vehicles through which remuneration and other benefits are indirectly paid to employees. The trusts were designed to minimise the tax liabilities of employers and employees. HMRC have introduced legislation to counter the avoidance of tax and national insurance contributions through the abuse of EBT’s, such as setting up the trusts offshore but never paying anything out. More detailed information can be found on our payment solutions page.

Employee Vetting / Induction

This is the process Crystal Umbrella follow in order to satisfy government legislation relating to the employment and payment of any worker in the UK. We follow strict procedures in proving you are who you say you are.

Employers Liability Insurance

This covers you as an individual if you are made ill or injured through your works fault. Crystal provides each contractor employee with £10 million in cover as standard. You can find our insurance certificates in our downloads section.

Give as You Earn (GAYE)

If you are interested in making charitable donations straight from your payslip these can be collected as part of the GAYE scheme. This means that the donation amount will be deducted from your salary each month before tax is applied.

Gross For Tax

This is the figure that a contractor’s tax is calculated on after expenses and other deductions have been applied to the invoice total.

Gross Pay

This is the amount that you earn before any deductions have been made in regards to income Tax, National Insurance and other statutory commitments.


Her Majesty’s Revenue & Customs is a non-ministerial department of the British Government primarily responsible for the collection of taxes and the payment of some forms of state support. HMRC was formed by a merger of the Inland Revenue and Her Majesty’s Customs and Excise and came into formal existence on 18 April 2005. The department’s logo is the St. Edward’s Crown enclosed within a circle. Crystal Umbrella follow strict guidelines set by HMRC in the calculation of all taxes and National Insurance Contributions, we also use HMRC approved payroll software.


On 9th March 1999, the Inland Revenue issued a press release detailing how they were to close the loophole that allowed freelancers and contractors to avoid paying large amounts of tax and national insurance by using a personal service company, composite company or business partnerships. See our IR35 section for more detailed info.


IR56 is the term given to the legislation that the HMRC use to determine if you are employed or self-employed; being employed or self-employed plays a big part in the way and amount of Tax and National Insurance you pay. The IR56 legislation is used in conjunction with the IR35 legislation.


Legislation is a law or laws passed by an official body. Find more details on our legislation page.

Managed Service Company

Managed Service Companies (MSCs) are composite company structures. In these structures, individual contractors will be the shareholders of the company but do not participate in the management of the company. The Company will be managed by a service provider. Contractors would then receive a mixture of salary and dividend payments. An Umbrella Company is often confused with a Managed Service Company (MSC), however; Umbrella Companies will not fall under the definition of MSC Legislation as laid out by HMRC as for a company to be a Managed Service Company it must fulfil all four conditions of Section 61B (1), Chapter 9, Part 2 ITEPA. Umbrella Companies do not satisfy the third condition. i.e. The payments received by the worker are greater than they would have received if all of the payments were treated as employment income of the worker relating to an employment with the service company. As umbrella companies do not pay dividends and consider whole income as employment income, they are not Managed service companies. In the view of HM Revenue & Customs (HMRC), MSCs existed due to the lack of application of “IR35” in this sector. Also, it was identified as the cause of lack of compliance. In December 2006, the UK Treasury introduced draft legislation called “Tackling Managed Service Legislation,” which seeks to address the use of “composite” structures to avoid income tax and National Insurance on forms of trading that the Treasury deems as being akin to being “employed.” After a period of consultation and re-draft, the new legislation became law in April 2007, with additional aspects coming into force in August and fully in January 2008. PAYE umbrella companies are effectively exempted from the legislation, which also seeks to pass the possible burden of unpaid debt (should a provider “collapse” a structure) to interested parties (Transfer of Debt), e.g., a recruitment agency that has been deemed to encourage or facilitate the scheme.


MSC stands for a Managed Service Company. This is a company that provides the services of people to other companies. These are now illegal as the contractor avoids paying tax as they claim dividends from the company. Crystal is not an MSC or affected by the legislation due to our PAYE only tax status.

National Insurance Contributions (NIC)

National Insurance (NI) in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits. It was first introduced by the National Insurance Act 1911, and expanded by the government of Clement Attlee in 1946. The contributions component of the system consists of mandatory contributions, National Insurance Contributions (NICs), paid by employees and employers on earnings, and by employers on certain benefits-in-kind provided to employees. Temporary workers belonging to Umbrella Companies such as Crystal Umbrella are responsible for both Employees and Employers NIC.

Net Pay

The meaning of Net Pay (or Net Salary) is the amount that is left over from an employee’s salary once specific deductions have been made. In the UK, these deductions include tax contributions and national insurance contributions. This amount of money will be paid into your bank. No further deductions are made to this payment once paid to you.

Overarching Contract

As a contractor, you are required to agree to the terms and conditions before starting your first assignment. This agreement comes in the form of an overarching employment contract and is used by Umbrella Companies. Part of the terms are that you become a permanent employee with legitimate employment rights working for the Umbrella company, and will be working on a number of assignments at various locations.


This is issued by your previous employer to you and the HMRC and details your earnings to date in the financial year as well as your personal tax code. This needs to be presented to Crystal as soon as possible after joining us. If you do not have a P45 we can provide you with a P46 which will be sent to the HMRC in order to allocate your personal tax code. A P46 can take up to 12 weeks to be processed by HMRC which will effect you as a temporary tax code will be used in the interim period.


P46’s have been replaced with a “Starter Checklist”


In the UK and Ireland a P60 (End of Year Certificate) is a statement that Crystal Umbrella will issue you at the end of year (around May) which will record the Tax and National Insurance paid to HMRC in the previous financial year. It is important a taxpayer does not destroy the P60 forms issued to them, as they form a vital part of the proof that tax has been paid.

Pay As You Earn (PAYE)

The Pay As You Earn (PAYE) system is a method of paying tax. The employer deducts tax from the employee’s wages before paying the wages. This means that tax is paid over the whole year, each time the employee is paid. The amount of these contributions is determined by the employee’s tax code.

Payment Frequency

Your payment frequency is how often you are going to get paid. You will negotiate this with your recruitment agency / client and it can vary from weekly, fortnightly, 4 weekly or monthly etc.

Professional Indemnity Insurance

This insurance protects you against a claim made by your place of work. This allows compensation to be paid if you are found to be negligent or have made a mistake whilst working. Crystal provides each contractor employee with £5 million in cover as standard. You can find our insurance certificates in our downloads section.

Public & Product Liability Insurance

This insurance will cover you, if you are found to be responsible for personal injuries to a third party and/or product. Crystal provides each contractor employee with £5 million in cover as standard. You can find our insurance certificates in our downloads section.

Rechargeable Expenses

These are expenses that the client has agreed to reimburse to the contractor and are raised along with time worked on an invoice. The contractor normally has to complete the client’s expense form, but if this is not possible it needs to be on a separate expense form and clearly indicated that the expenses are to be invoiced and reimbursed to the contractor.


Remittance is written notification stating that the agency/client intends to make payment to us on an outstanding invoice. Remittances help track which contractors are being paid for which invoices. Contractors can be paid on receipt of remittance before we receive actual funds.

Salary Sacrifice

A salary sacrifice happens when an employee gives up the right to receive part of the weekly/monthly pay. Usually the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit, like child care vouchers.

Same day payment (CHAPS)

Often referred to as a faster payment or CHAPS (Clearing House Automated Payment System) this is a payment made manually by Crystal which clears into your bank account the same day as it’s processed.

Self Assessment

This is a declaration made to HMRC which states what you have earned over the previous financial year. You will not be required to complete a self assessment for any income processed by Crystal Umbrella, unless you are a random case selection made by HMRC or have earned income outside that which is processed by Crystal or a higher rate tax payer.

Self Billing

A self billing agency/client will not require invoices to be submitted and will raise payments based on the timesheets submitted by the contractor. The contractor will need to also submit expenses to Crystal Umbrella so that they can be budgeted for within your payment schedule. Travel and subsistence claims can only be claimed if you are not under supervision, direction or control.

Starter Checklist

If you do not have a P45 you could complete a “Starter Checklist” which you can give to your umbrella company or accountant, who will use the information along with the HMRC to allocate your tax code. There is normally a delay (which can be 6 – 12 weeks) in this getting through HMRC’s system and you will be placed on a temporary tax code until your correct tax code is given.

Statutory Payments - SSP, SMP, SPP, SAP

Crystal Umbrella, as your employer, is legally required to pay your statutory sick pay (SSP), maternity pay (SMP), paternity (SPP) or adoption pay (SAP) in line with company policy and guidelines during continued absence from work due to any of the above.

Tax Codes

Your tax code can be found on a P45, P60 and at the bottom of your payslips. If you multiply the number in your tax code by ten, you’ll get the total amount of income you can earn in a year before paying tax. The letter shows how the number should be adjusted following any changes to allowances announced by the Chancellor and further details can be found in the Tax Codes fact sheet on our downloads page.


This is the record that you send to your recruitment agency and/or your umbrella company detailing what hours you worked within a given time period. This is used by the recruitment agency and Crystal Umbrella in order to raise invoices for the work completed, which begins the payment cycle.

Umbrella Company

An umbrella company is a company that acts as an employer to Agency contractors who work under a fixed term contract assignment, usually through a Recruitment Agency. Recruitment agencies issue contracts to a limited company (in our case Crystal Umbrella Ltd), this reduces the agencies employment liability. The Umbrella Company then issues invoices to the recruitment agency (or client) based on timesheets submitted by the contractor, when payment of the invoice is made, will typically pay the contractor through PAYE plus any budgeted expenses such as Travel, Meals, and Accommodation etc. Due to recent legislation travel and subsistence can only be claimed if you are NOT under any supervision, direction or control during your contract. Umbrella companies have become more prevalent since HMRC introduced so-called “IR35” legislation that creates tests to determine employment status and ability to make use of small company tax reliefs.

Value Added Tax (VAT)

This is a tax that is added to certain goods and services (usually at 20.0%), which is paid to HMRC. VAT is charged on invoices to the agency / client although some contractors (such as doctors) are exempt.

Visas and Permits

These prove an individual’s eligibility and right to work within the UK/Europe. If a contractor is new to the UK and from outside Europe they will need to apply to the Home Office for the necessary documentation.

Week 1 / Month 1

If a contractor does not have an up to date tax code (normally from a P45) they will be put on a week 1 / month 1 tax code. This tax code does not take in to account any other earnings in the tax year and is applied on a week by week basis. Any tax overpayment will be rectified once the correct tax code is assigned by HMRC.

Which Way Now? To investigate further, choose another path below.