Being self-employed can offer you greater choice over when and where you work as well as giving you the opportunity to enjoy more flexible working hours. However, self-employment also comes with its own set of worries and drawbacks. One of these drawbacks is that you have to look after your own tax obligations, and IR35 legislation doesn't make life any easier.
If you fall within the boundaries of IR35 legislation joining an Umbrella Company may be the most tax efficient way to carry out your work as a contractor.
What is IR35?
Intermediaries legislation, better known as IR35, was first introduced in April 2000. The legislation was put in place in order to curb tax and national insurance avoidance through contractors setting themselves up as a limited company when they are in fact working as an "employee" of the company to which they are contracted. If you fall into this category you will be taxed as if you were an employee rather than enjoying the tax benefits of a limited company
When working out whether IR35 affects you, you will need to first determine your employment status, i.e. whether you are deemed "employed" rather than "self-employed" by HMRC.
How can an Umbrella Company help?
An Umbrella Company can remove the problems and increased level of taxation associated with falling under IR35 legislation.
When you join an Umbrella Company as a contractor you become a flexible employee of that company, maintaining the autonomy of a contractor. An Umbrella Company will allow you to enjoy all the benefits of operating as a limited company without the threat of falling foul of IR35.
Such companies can fulfill other contractor accountant and administration roles too, chasing payments, ensuring your taxes and national insurance are paid on time. These services will remove some of the most time-consuming factors of operating as a contractor or limited company, leaving you free to get on with your job and what you do best.
In order to join an Umbrella Company you will normally have to pay a regular fee during periods of work. How much this is will vary from company to company. Joining an Umbrella Company may not be the right option for all contractors and you may choose to set up as a limited company instead. Finding the right option for you will depend on the nature of your employment and your own individual circumstances.
An Umbrella Company can provide employment and payroll services giving you a helping hand with some of the more taxing elements of self-employment.
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