Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.
Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.
Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.
The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]
Umbrella companies seem to suffer from permanent bad press.
Most of this can be put down to the traditional stuffy accountancy style firms terrified that they cannot stop the flood of clients jumping ship for the much easier amd more sensible option of the umbrella service.
They're regularly under attack from a wide range of third-parties who think they smell a 'Bash-the-baddies' story to take credit for.
Well actually, they're 'wrong'. This includes the various Ministries, MPs, self-appointed bodies, ignorant media, ignorant recruitment agents and anyone else who thinks they're a scam.
In fact, tellingly the only body to appreciate the inherent value of an umbrella company scheme is HMRC. Believe it or not, the two work quite closely together.
HMRC certainly understand the what, how and why of an umbrella company. Maybe if the meddlers knew too, they'd see the incompetence of the argument.
1. The decision to use an umbrella company has nothing to do with tax - and everything to do with a dislike of paperwork, red-tape and administration. There are many benefits from using an umbrella company, and tax is not in the top five reasons.
In order to satisfy the recruitment policy of the hiring end-clients a contractor has to trade via a limited company, one way or the other. If they do not use an umbrella company service, they will have to set-up their own one-man limited company.
An umbrella is the fast-food of accounting. Keep up.
2. HMRC is actually saving money because of umbrella companies. Say there are 500,000 contractors using around 300 mainstream umbrella companies. That means HMRC only have to administer 300 tax accounts rather than half a million individual one-man limited companies! That equates to a massive on-going saving.
Contractors who run their own one-man limited company also claim business expenses, far more than the average umbrella company service user, according to recent research by UC Finance.
3. If the umbrella company is not operating within HMRC rules they get closed down. No different from any other industry.
4. The only thing immoral about the umbrella company service is the margin. Set-up and manage your own limited company - you'll pay considerably more and have to spend your life fighting red-tape.
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It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.
Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].
Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.