What's the difference between PSC and umbrella?

PSC: you own company, more tax-efficient, more admin. Umbrella: simpler, less tax-efficient, employer handles payroll.

What does inside/outside IR35 mean?

Outside IR35 = genuinely self-employed, tax advantages. Inside IR35 = treated as employee for tax, fewer advantages.

You don't get paid during gaps between contracts. Must save for it. A 2-week bench costs £10,000 for a £500/day contractor.

Emergency savings covering 3–6 months living expenses. Covers bench time and unexpected costs. Non-negotiable before contracting.

📖 Guide

Key Definitions

Definitions of contractor, tax, and business terms used throughout the contracting guide.

Contractor: Self-employed person or limited company providing services to clients. Not an employee.

PSC (Personal Service Company): Limited company you own and operate. Invoices clients directly. Most tax-efficient structure for higher earners.

Umbrella Company: Employs you for PAYE purposes. Handles payroll, taxes, NI. Simpler but less tax-efficient.

IR35: Employment status rules. Determines if you're genuinely self-employed (outside IR35) or an employee in disguise (inside IR35).

Bench Time: Unpaid gap between contracts. Typical: 1–4 weeks. Must be funded from savings.

Corporation Tax: Tax on company profit. Currently 19% (small profits rate) to 25% (large profits).

Dividend: Distribution of profit from company to you (shareholder). Taxed at dividend tax rates (8.75–39.35%).

VAT (Value Added Tax): Sales tax. Must register if turnover exceeds £85,000/year. Charge clients 20%, reclaim on expenses.

Self-Assessment: Annual tax return to HMRC. Contractors file by 31 January following tax year.

Accountant: Professional who prepares accounts, files tax returns, advises on tax planning. Essential for PSC contractors.

Day Rate: Daily fee you charge clients. Typical: £300–£750/day depending on role and experience.

Assignment Rate: What the client or agency pays (before agency margin). Different from what you actually receive.

Margin: Fee agency takes. Typical: 8–25%. Comes from client's budget, not yours.

Net Take-Home: What you actually keep after tax, bench, expenses. Always compare jobs on net, not gross rate.

Notice Period: Time to end contract. Typical: 1–2 weeks either side. Should be symmetrical.

War Chest: Emergency savings. Typically 3–6 months expenses. Must-have before contracting.

Cashflow: Movement of money in and out of business. Contractors must manage gaps between invoicing and payment.

Invoice: Request for payment. You issue to client (or agency). Payment terms typically net 30 (30 days).

Expense: Cost of doing business (home office, equipment, travel, training). Tax-deductible.

Pension: Retirement savings. Contractors must self-fund. Can contribute through company for tax efficiency.

Ask our team. We're here to clarify contractor jargon.

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