Employment Status

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...]

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Umbrella Company Expenses Umbrella Company Tax

Umbrella Company Expenses

You Get More Than Nothing

Using the services of an umbrella company, not only do you get zero hassle, you also get the opportunity of paying less tax. You do this by claiming for various legitimate business expenses.

HMRC dictate exactly what business expenses are allowed. Currently included are such items as:

  1. Professional subscriptions
  2. Postage
  3. Training costs

And There's More...

Another 'key' expense is the cost of travel to your assignment, together with daily subsistence (food and drink).

Technical: employees who work from home are entitled to a tax deduction for the expense of travel to a temporary workplace; this includes the cost of any necessary meals and drinks (subsistence costs).

In English: contractors who work through an umbrella company are eligible to claim travel expenses. These are costs for travelling that are over and above any costs if you didn't have to travel. Travel to your client's site is an additional cost.

There's Always A 'But'...

However, if you intend to work on just a single contract and then leave your umbrella company to go back to a full-time job, you would have to pay back the tax you had previously saved from your expenses.

This is because a single contract would be deemed as a permanent workplace, and travel between home and office is treated as normal commuting - not an allowable business expense.

Umbrella Companies Business Expenses Rule 1

You have employment rights through your employer, which is your umbrella company. Some of your rights are 'statutory' rights, such as:

  • Sick pay
  • Maternity pay
  • Paternity pay
  • National minimum wage

Another set of rights are granted through your Contract of Employment from your umbrella company (things like: notice period, place of work, and terms and conditions of assignment).

Your umbrella company will provide you with assignment details for each contract you undertake.

Umbrella Companies Business Expenses Rule 2

You will use your home office to:

  1. Find a new contract(s)
  2. Update your skills and training
  3. Is your base to travel to your contract(s)
  4. Complete the umbrella company paperwork for your current contract

Therefore your contract(s) takes place at temporary workplace

This is important because:

  • You can claim an allowance for use of your 'home as office' - which is free of tax
  • You can claim an allowance for business travel to a temporary workplace.

Umbrella Companies Business Expenses Rule 3

Your umbrella company is your (legal) employer and obliged to check and authorise business expense claims and where possible verify claims with supporting evidence like a receipt.

Sometimes knowing what business expenses you can claim can be really confusing. If you get it wrong you end up paying more tax than you need to, or even worse, find that HMRC will ask you to pay back money for claiming the wrong expenses.

The best way for a contractor to remain within the law is to use the services of a reputable (umbrella company. Get it right and you stay within law, and at the same time maximise your take home pay.

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HMRC Compliance

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.