Umbrella companies are generally seen as the simplest way of ensuring that all your taxes and the administration side of the business is taken care of so you can focus on your work. This kind of company would also be able to provide you with the relevant insurance policies to provide you with protection should there be any problems – all of which you would normally have to sort out for yourself should you decide to operate through a limited company.
Benefits of an Umbrella Company
By using an umbrella company you will not have to charge the company yourself as they would send out the invoices for you, directly to your client. This is obviously one less job for you to do but the actual invoice submission isn’t the problem, the problem lies with those who fail to pay in a timely manner. In this case chasing payment can be a difficult and very time-consuming process, but an umbrella company will take care of this hassle for you. They will also take care of the tax implications that come with these invoices, allowing you to focus on completing and securing further projects.
The umbrella company actually takes the payment on your behalf as well, subtracting any tax or national insurance contributions as well as their fee. This means that when they transfer the money to you, what you get is what you keep.
Therefore, your taxable income will be reduced by the value of the expenses. That is not to say that expenses can be used to reduce your tax bill. Anything that you claim must be allowable by the Inland Revenue and must be a cost to you personally that is entirely attributable to the work you have done. An Umbrella company may provide you with a great deal of help but this kind of support isn’t free and comes at a price with many umbrella companies fixed fee often reaching three figures whereas some can even charge a small percentage of each invoice, for example 5% of each job invoiced.
Choosing the Right Umbrella Company
There are many umbrella companies available so don’t be afraid to shop around comparing both the fees and the services included within those fees. Some companies may offer to help you reduce your tax liabilities but the only way they can do this is to inform you of what you can and cannot claim – there is no legal way for them to reduce the amount of tax you are required to pay so don’t listen to these claims.