Umbrellas are something more than that item keeping you dry from the rainy weather. Nowadays, an umbrella is used for something else. How so? Combine the word umbrella with a company, and you’ll know what I mean.
However, if you are one of those people new to the business of freelancing or those who are currently self-employed then allow me to explain what UK Umbrella Companies are. These will greatly aid individuals such as you when it comes to the risky business of tax issues and taxation affairs.
Uniting a variety of contractors.
Basically, an umbrella company unites a variety of contractors of which are those not permanently employed by one company. These people include IT engineers or builders. Contractors have various reasons as to why they enroll or join such companies.
Filing PAYE and managing tax returns
Working on your own or being a contractor may have its perks, but there are legal issues to be dealt with. Working on your terms also means you as a freelancer or a self-employed individual are responsible for filling PAYE and managing tax returns of which the HMRC would legally require everybody to do. Some individuals are quite experienced in this and choose to do all these on their own but if you aren’t one of those people and you have got the idea that such a job for tax affairs is “taxing” then worry not because this is where an umbrella company comes into the picture.
Managing all tax affairs
The handy umbrella, in this case, helps out by managing all tax affairs, so you won’t have to worry about HMRC legislations or the IE35. What else do they handle? They make sure contractors are in contact with the cash they worked so hard for to earn. This also includes reimbursing all expenses incurred that are directly involved with the freelancer’s work or the self-employed individuals’ business. Imagine the relief you get when you claim all the expenses. This reduces NIC contributions plus your overall tax meaning more money for you.
Processing of claim for your expenses
Some companies offer services that they say can reduce the payments made to the Inland Revenue. This is untrue as it is illegal to pay less than what the Inland Revenue calculates to be your tax rate. You are permitted to claim for your expenses, and these will be processed for you by your umbrella company. Expenses that are chargeable to your client or agency will be refunded to you in full, and those who are not chargeable will be processed as a tax benefit.
If your costs to the umbrella company are high, then you are certainly not getting a great deal. Stay away from companies offering fees of a percentage of your earnings. If you do work for an agency, also be wary of their recommendations for an umbrella company as they are often given incentives to help sell the services of certain companies. Research online to find the best deal for you.