Using an umbrella company to your advantage

Working as a freelance professional can be difficult as there are many complications that simply do not exist when working for someone else. However, it is possible for contractors to become employees of an umbrella company, thereby removing the difficulties associated with self-employment while retaining the flexibility of contracting.

How umbrella companies work
An umbrella company is effectively an independent employer for contractors. It employs contractors and, in doing so, simultaneously takes over the entire administration of the contractor and processes their payments, or in other words, pays them a salary. For its services, an umbrella company charges a fee that is deducted before the contractor is paid. The contractor does not work directly for his client, but provides his services through the umbrella company. In some cases, the contractor will use an agency to get clients instead of looking for them themselves. In this scenario, the client will pay the agency that will pay the company for the contractor’s services after deducting their own fee.

tax
Since the worker receives a salary from the company, income tax is deducted from the salary in the normal way through Pay As You Earn (PAYE). This is done automatically by the company, which also discounts Social Security before paying the worker. Therefore, the money received by the contractor is your final payment after taxes. In terms of tax reduction, for self-employed people who are in a higher tax bracket, using an umbrella company can reduce their tax expense, since they would pay tax through PAYE as an employee.

Bills
A contractor can claim the appropriate expenses when working through an umbrella company. This can minimize the amount of tax the contractor pays, since the expenses owed are paid to the contractor separately from the contractor’s wages and are therefore not affected by income tax. This is not a way to cheat the system and avoid the mandatory tax; all expense claims must be legitimate in the eyes of the law, something these companies are very careful about. Allowable expenses refer to the necessary expenses incurred by the contractor to perform the contractor’s functions and may include things like travel, food and drink, training, and lodging. Working through such a company makes this whole process much easier for the contractor, who simply submits all receipts and details of incurred expenses to the umbrella company, who then pays these expenses to the contractor along with the salary. of the.

Umbrella companies offer contractors security and flexibility and remove all the hassles that self-employment is known for. As any contractor will know, making sure you are tax compliant can be very stressful and mistakes, even if honest, are not treated lightly and can incur devastating financial penalties. This type of company assumes the responsibility of the contractor, thus giving him the peace of mind that he is minimizing the amount of taxes he pays but in a legitimate and legal way. They will also pursue customer payments on your behalf, since the business is paying you instead of the customer. Usually, all the details can be exchanged very easily and contractors can submit their timesheets and expense information online. You can also set up a contributory pension plan as a contractor working for an umbrella company.