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What is an Umbrella Company?
Many freelance contractors find using an Umbrella Company a great alternative to going into business with a Contractor Limited Company, especially in the aftermath of the Managed Service Company Legislation.With an Umbrella Company all you normally have to worry about is getting timesheets signed off and sending in expense claims, the umbrella company does the rest. The Umbrella Company will deal with all contract administration, invoice the client/agent, receive contract billings, process expense claims, deduct Income Tax and National Insurance (under PAYE) and pay directly into your bank account. This means there is no need to worry about IR35 (as all income is paid PAYE) or the mountain of paperwork associated with running your own contractor limited company.
To find out about Commonwealth Contractors Umbrella Company Solutions, Expat Advantage and Payroll Umbrella call now on 0800 294 4388 or Submit your details and we will get right back to you!
Minimal Personal Administration
A Limited Company has a legal existence of its own and incurs costs even when no work is occurring. If you run a limited company you have to complete quarterly VAT returns, pay PAYE deductions to the HMRC, file annual returns and accounts, invoice the client/agent, open a bank account, pay Corporation Tax to the HM Revenue and Customs etc.An Umbrella Company removes all of these administrative headaches. All you have to do is send in timesheets (so that the umbrella company can invoice the client/agent) and prepare expense claims (which must be valid and in line with the Umbrella Companies expense policy). You receive regular payslips to prove income and at the end of the year receive a P60 showing all tax paid in the tax year. Unless requested by the HMRC you will not have to complete a tax return as all income was paid PAYE.
Claiming Business Expenses
Umbrella Companies normally allow freelance contractors to claim business expenses incurred further to a particular assignment. Claims are only allowed where the claim is for expenses incurred wholly, exclusively and necessarily in the performance of your duties. The level of business expenses you can claim depends upon the assignment, your personal circumstances and what the umbrella company is prepared to allow.By claiming legitimate business expenses you can reduce your tax bill and increase your retention as expenses are reimbursed on a tax and national insurance free basis.
In order to claim site based business expenses you must comply with site based rules. If you do not you could find you have a tax bill.
IR35
You can rest assured that you will never have to face an IR35 Investigation if you use an Umbrella Company as all income is paid through the PAYE scheme. Some contractors can legally reduce national Insurance costs by using their own personal service company, however, this is only an option for those ‘Outside IR35’. Contractors with their own companies who pay themselves dividends but are later judged to be ‘Inside IR35’ face potentially large costs as the HM Revenue and Customs has the power to go back 6 years to recover underpaid tax/national insurance.The Managed Service Company Legislation (MSC)
The Managed Service Company Legislation 2007 does not apply to Umbrella Companies as all income is paid through the PAYE scheme and at no time is there any non-PAYE (eg Dividend) profit payment.Umbrella Company Tax
The Umbrella Company will deduct tax at source from salaried income using the UK Pay as You Earn Scheme (PAYE).You will be required to pay Income Tax and Class 1 Employee’s National Insurance on all salary payments. There is also a Class 1 Employer’s National Insurance cost. Some Umbrella Companies charge you extra for the Class 1 Employer’s National Insurance (currently this is 12.8%), but at Commonwealth Contractors we work with companies that pay the Employer’s National Insurance out of their margin (alas, this is not a ‘free lunch’ as the margin has to be higher than those umbrella companies that give you the Employer’s National Insurance bill).
Once payments have been made the Umbrella Company will send you payslips detailing salary and expense payments.
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