Terminology Tracker

Whether you are new to the world of contracting or you are a seasoned freelancer you will find that there is a vast array of industry terminology for your to familiarise yourself with.

To help, we have created a "Terminology Tracker" to give a brief outline of the terminology you are likely come across.

24 Month Rule

Workers are only permitted to claim site based expenses if the workplace meets the HMRC definition of a temporary site; whereby the attendance lasts no longer than 24 months. As soon as it is known that the assignment will last beyond 24 months, expenses can no longer be claimed. If for example, assignment is entered into for 48 months, then from the outset no site based expenses can be claimed for that particular assignment. Lesters can answer any questions you have on claiming site based expenses against your assignment.


Auto-enrolment is a Government initiative to help more people save for later life through a pension scheme at work. Legislation is now in place that ensures employers automatically enrol their eligible workers into an approved pension scheme. Workers will have the option to “opt out” of the pension scheme, but will need to continue to “opt out” each year to avoid being automatically included at a later stage. Lesters operates a group personal pension scheme, provided by Royal London. Our scheme meets the new 'auto-enrolment' regulations.


The Agency Workers Regulations (AWR) 2010 came into effect in on 1st October 2011 with the directive of ensuring that agency workers were granted the same basic employment rights as their colleagues employed on a permanent basis. The regulations ensures that rights such as salary and holiday pay, working hours and access to facilities is equal amongst temporary and permanent members of staff. Lesters can answer any questions you have regarding the AWR legislation.

BACS Payment

BACS stands for Banker's Automated Clearing Services. This is a standard method of payment with banks and takes 2 to 3 working days to clear. Lesters use the BACS system for making domestic payments.

Business expenses

Business expenses are the cost incurred due to your work commitment. In order for your expense claim to be deemed valid the cost to you must have been incurred wholly, exclusively and necessarily in the performance of your business activities.

Chargeable Expenses

Chargeable expenses refer to expenses which the agency or end client has agreed to reimburse. Typically the Umbrella company invoice the agency for these expenses which in turn are reimbursed to you in full. Lesters will not deduct any administration fee or margin when processing the reimbursement of chargeable expenses.

Childcare Vouchers

Childcare Vouchers are a Government-approved and tax efficient way of paying for childcare. Workers who opt to join the scheme can exchange up to £243 a month of their gross salary for childcare vouchers. The part of the gross salary exchanged for childcare vouchers is tax-free and exempt from National Insurance contributions. Lesters operate a child care voucher scheme, please call us for more details.


The Construction Industry Scheme (CIS) is a HMRC directive which sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry. The scheme applies mainly to contractors and subcontractors in mainstream construction work, however businesses or organisations whose core activity isn't construction but have a high annual spend on construction may also count as contractors and fall under the scheme. Lesters provide a number of services to support self-employed individuals working in the construction industry, please call us for more details.


Dispensation is an agreement reached between the HMRC and an employer which removes the requirement for the employer to report certain expenses and benefits at the end of the tax year. This notice serves to reduce the administrational burden otherwise placed on the employer.

Employee Benefit Trust (EBT)

An Employee Benefit Trust is a way to provide employees and directors with specific kinds of benefits such as loans, shares in their employing company, pensions and other retirement benefits, accident benefits or healthcare benefits. In the freelancer and contractor industry they have been used for avoidance purposes, with the aim of providing the workers with benefits in ways that aim to minimise or avoid liability to income tax (and PAYE) and employers’ National Insurance Contributions (NICs). Typically these schemes would require the contractor to assign their contract to the offshore provider who, in turn, would pay the contractor a low fixed salary with the greater remainder part of their remuneration package paid out as a loan from an offshore EBT. The loans would be properly reported as a benefit-in-kind but the tax paid on the beneficial loan interest by the contractor would be minimal compared with the tax and NIC that would normally be paid. The scheme hinges upon the fact that the loan would not be written off nor an intention for the loan to be repaid by the contractor, thereby escaping a large tax charge. HMRC does not like the use of EBT's and continues to clamp down on the abuse of EBT's to avoid tax. Lesters does not promote or operate such schemes.


FasterPay is the term banks use for a domestic payment issued which clears the nominated bank account on the same working day on which it was sent. Lesters use the FasterPay system for making same day domestic payments.

Gross Pay

Gross pay is the term used to describe pay before any deductions of tax, national insurance and other statutory or non-statutory deductions are made.


Her Majesty’s Revenue & Customs (HMRC) 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. Lesters use HMRC approved payroll software to ensure that we follow guidelines set by HMRC in the calculation of all taxes and National Insurance Contributions.

Holiday Pay

Employed workers in the UK have the right to take a minimum amount of paid statutory holiday. This includes people who work full-time, part-time, agency workers and casual workers. Only people who are self-employed and a few other exceptions will not be entitled to statutory paid holiday. Since April 2009, all PAYE employees are entitled to 5.6 weeks paid holiday each year which amounts to 28 days (including public holidays).

Net Pay

Net pay is the term used to describe pay after deductions of tax, national insurance and other statutory or non-statutory deductions. This is often referred to as "take home pay".


A P45 is an HMRC document produced by the employer when the employee ceases working with them. The P45 shows how much tax has been deducted from pay in the current tax year up to and including the last day of employment . The P45 is sent by the employer to HMRC and a copy is given to the leaving employee so that this can be passed to their new employer for the continuation of the tax payments. If the absent of a P45, a P46 can be used to notify parties that a new employment has commenced.


A P46 is a HMRC document used by the employer when a new employee starts work with them and has not produced a P45 document from their previous employer. The information entered on the P46 is used by HMRC to let them know that a new employment has commenced. Normally employees relying on the P46 document ( in the absence of a P45) are temporarily taxed under an week 1 / month 1 tax code (emergency tax code) until HMRC collate details of prior employment and can issue the new employer with the correct tax code.

Remittance advice

A Remittance advice is a notification issued by a customer to inform their supplier that a payment has been made. In the freelancer and contractor industry they have been used by agencies to inform the Umbrella company or the contractors limited company that a payment has been made.


Self billing is when the customer agrees with the supplier to raise the invoices to itself. In the freelancer and contractor industry self-billing is often agreed between the agency and the Umbrella company or the contractors limited company to negate the need to wait until supplier has delivered an invoice before processing a payment. Effectively the invoice normally raised by the Umbrella company or contractors limited company is instead produced by the agency to save administration and expediate the payment process.

Statutory Payments

Statutory Payments is the term used to describe payments made by employers as directed by government. These include SSP (Statutory Sick Pay), SMP (Statutory Maternity Pay) and SPP (Statutory Paternity Pay). Lesters are responsible for the processing and payment of employee statutory payments are do so in accordance with the government guidelines.

The Vault

The Vault is Lesters cloud based secure contractor portal. The portal provides our umbrella workers easy access to key information, such as assignment, timesheet, expenses and pay information and reduces the administration surrounding their payments.

Timesheets & Invoices

A timesheet is a document used to record the number of hours/days that an employee has worked. In the freelance and contractor industry the agency will obtain a signed timesheet from the end client before issuing a payment to the Umbrella company or contractors limited company. The Umbrella company will collate the information from this timesheet with the details provided by the worker and generate an invoice that is delivered to the agency. An Invoice is effectively a payment request.


VAT, value added tax, is a sales tax which is charged against certain goods and services. All VAT-registered businesses in the UK need to account for VAT. Lesters will charge VAT on the invoice which is produced to your agency or end client for your time worked. The VAT element of this is then payable to HMRC.

Week 1 / Month 1

Week 1 / Month 1 (Also known as an emergency tax code) is a temporary tax code which an employee is placed on in the absence of a P45. The tax code does not take into account any other earnings in the tax year and is applied on a week by week basis to limited the possibility that the employee could under pay tax. Any subsequent tax overpayment can be rectified once the correct tax code is assigned by HMRC.