The Umbrella Company Guide

Umbrella providers offer many services that can make life easier for a contractor. If you are looking to enter contracting but want to taste it first, you can join an umbrella without having to setup a limited company. The cost of setting up and closing a limited company are massive. With umbrella company, you do not have to bear any of those costs and still you can start contracting. Umbrella providers give you all the necessary services that will help you to work smoothly as a contractor.

However, umbrella company is not the most tax-efficient way for contractors. In fact, contractors will be paying much lesser in tax when they are operating through their own limited company. Operating through a limited company means that you can minimize your exposure to tax. Since you will be director of the company and you will have all the powers, you can decide about work practices and other things that can influence amount of tax you pay. You can also pay yourself lesser in salary while paying higher through dividends to keep the taxes low. You can do plenty of other things when working through a limited company.

On the other hand, when you operate through a limited company, you have to pay NI and PAYE. This means that you will be paying relatively higher taxes. However, giving up something for getting massive benefits from umbrella may sound right. For instance, you will be giving up some part of your income by paying extra tax but you will not have to worry about administration and managerial side of your work. Umbrella company will not only process the payroll but it will also help you with tax and NI deduction. The pay you get is yours to spend without having to save for paying tax at the end of the year.

In order to operate through an umbrella, you have to sign up with a company. Once you sing up, you will be logging work hours using an online tracking system. The client will be able to verify your timesheet. After verifying the timesheet, he or she will be releasing the payment to umbrella provider. The umbrella provider will move the payment to your bank account after deducting necessary tax and NI contribution.

When selecting an umbrella provider, you have to be careful to avoid the grey areas. Some providers will be claiming that you can enjoy special claimable expenses with them while others will be advertising themselves as the most tax efficient. However, you have to know the truth. An umbrella company will not be able to permit any expenses. Only HMRC can allow expenses and it will investigate if it doubts anything.

You will also have to make sure that you are reading some reviews before you make the decision to work through a particular umbrella company. Thanks to the internet, you can now find information on the go. Just type and search umbrella provider’s name and you will find plenty of opinions about the company. Read them carefully and you will know where to go next.

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