How Does Tax Get Paid in an Umbrella Company?

As a contractor, choosing an umbrella company to take care of your tax affairs means contractors are instantly compliant with HMRC’s PAYE and NIC requirements. After a quick phone call or email to Umbrella Company UK contractors will become employees of the company and are able to continue contracting as normal, freeing up extra time to take on extra work rather than wasting time on administration. A simple contract of employment is signed and the deal is done.

From that point on contractors will no longer have to spend time billing, paying taxes, searching for relevant tax exemptions and tax credits or chasing late invoices. The only task that the contractor will need to complete in relation to administration is to file a time sheet with the umbrella company once per week with the number of hours worked and any expenses claimed. The umbrella company will then do everything else – invoice clients, make PAYE and NIC contributions and pay into a pension, making all the relevant deductions and forwarding the balance immediately to the contractor.

Freeing up valuable time and energy is not the only advantage of being an employee of an offshore umbrella company. There are tax advantages as well for contractors under umbrella companies, such as a large pension allowance which is tax-free. Another major advantage is the certainty of knowledge that the contractor will never find themselves answering hard questions to HMRC (or any at all!) and will never be on the receiving end of an IR35. Neither onshore intermediaries’ legislation nor IR35 legislation applies to contractors working under umbrella companies.

Image Credit

 HMRC spelled out

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