For those not in the contracting environment or ever involved in temporary employment the term umbrella company can be a confusing term to understand. But for those moving from permanent employment or for whatever reason its vital to understand the new environment you will be working within. This includes learning how to manage your finances and pay taxes. This is where umbrella companies and limited companies become a reality and a necessity.
Lets begin with understanding how this will work. First off, its vital to join an umbrella company for those contracting in the UK. This arrangement involves signing a contract this involves yourself becoming an employee and the umbrella company as the employer. This allows all paperwork and taxes to be paid and taken care of on the contractors behalf. Thus processing the PAYE payroll for contractors whilst offsetting business expenses against their tax. This helps remove the worry of any legislation and specifically IR35.
Many may have the perception of temporary workers, and this includes contractors, of wanting to work this way as it encourages flexible working hours and the sense of being your own boss. But not everyone will have the time or drive to set up their own limited company. Which would involve many hours and a lot of administration work. This is why umbrella companies provide a great service and a hassle free way of working temporary, especially if it is a short term solution.
Being paid is simple, a time-sheet will be required to be submitted to the company. This will also be countersigned by the client. Once the client pays the invoice, it will then be forwarded onto the contractor. This pay will exclude any expenses, fees and tax.
Depending on each individuals circumstance, umbrella companies provide many different benefits for contractors. Here are just a few key benefits:
- You are provided with travel expenses, which are tax free.
- You are not responsible for your taxes. This lies with the umbrella company and dissolves all responsibility and stress.
- Most contractors will be provided with first class private health care.
- Its not uncommon to be provided with business managers that help with paperwork and all the daily problems that contractors face.
- There are also many tax advantages. Such as claiming expenses pre-tax. This reduces the amount required to pay tax on, thus improving pay over those with straight PAYE.
- Great short-term solution for contractors not looking to work temporary long-term.
If you are having to work temporary and you have never even heard the term contractor umbrella company. It is recommended to carry out in-depth research that covers all available options. This should also cover the pros and cons of setting up a limited company. This also has many benefits that an umbrella company cannot provide. But again, each case is specific to each individuals circumstance.
Harvey McEwan provides information and advice on a variety of areas to help contractors and other temporary workers understand the options available regarding pay. Covering topics such as contractor umbrella company and limited companies. View Harvey's other articles to find out more.
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