Limited company contracting has long been the most tax-efficient way to operate as a contractor because you can benefit from paying yourself with a combination of salary and dividends. However, to the displeasure of thousands of temporary workers, the environment is changing, and finding roles outside IR35 has become more of a challenge. And, with changes of off-payroll legislation, more and more contractors are finding their assignments are inside IR Plenty of recruitment agencies and organisations engaging with temporary workers prefer to outsource their payroll responsibilities.
After all, running payroll for hundreds or thousands of workers can be stressful, time-consuming and expensive. Using an umbrella company is your choice. With so many umbrellas in the UK marketplace, you should be able to make your own decision, or at least have a choice from several proven providers. We quite like the idea of agencies having a Preferred Supplier List PSL with a selection of compliant umbrella companies for you to choose from — providing they have done their due diligence of course!
This is probably best explained as a series of step by step processes. To be honest, we feel sorry for transparent and compliant umbrella companies because they make up a significant majority of the marketplace. Choose a compliant umbrella company — and you have absolutely nothing to worry about. Compliant umbrella companies make contracting a dream! Here are some tips that we recommend you adhere to when selecting an umbrella company for your payroll:.
HMRC is always looking to step up their efforts in catching tax avoidance schemes , and the people who engage with them. Tax avoidance schemes could ruin your life. Tax avoidance schemes trick as many contractors as possible to sign up with them. They deliberately help the contractor pay less tax and NICs. Then, almost overnight, the tax avoidance scheme will disappear. The Loan Charge Government legislation allows HMRC to retrospectively reclaim underpaid tax from contractors who avoided tax historically.
If you purposely want to avoid tax — please leave this website. The biggest concern that first-time umbrella users have is about employment costs. And, on top of this, why should the contractor then be responsible for the Apprenticeship Levy? Well, let us answer these questions for you. Each role you work on will have an assignment rate of pay e.
If the role requires you to use an umbrella company for your payroll, the assignment rate should include an uplift that will cover the employment costs — meaning you are no worse off.
Please remember, umbrella companies are not there to take your hard-earned money and keep it for themselves. They are there to help you get paid efficiently and compliantly with HMRC rules and regulations. Umbrellas receive your assignment rate from your agency or end-client, make the legal deductions, and then pay you your salary.
They get a small margin for their administrative responsibilities to cover their costs such as staff, equipment, business running costs, etc.
IR35 is a piece of tax legislation brought in by the Labour Government in April Contractor umbrella companies were first introduced to the freelance marketplace following the arrival of IR They rapidly became the choice of many contractors who wanted to work in an IR35 compliant way, yet still take home more than they would under normal PAYE.
However, the government decided that many were abusing the system and paying themselves with a combination of salary and dividends — even though their assignment was technically inside IR What did the government do about it?
From April , contractors in the public sector were no longer able to determine their own IR35 status. This responsibility now falls on the end-client. The same changes are rolling out into the private sector in April They were initially scheduled for April but were deferred for 12 months as a result of the coronavirus pandemic.
For the avoidance of any doubt, if you work through an umbrella company, you will NOT be affected by IR Visit our dedicated IR35 page for more information on IR35 and changes to off-payroll legislation. FACT: Your income will be made up of a gross salary and tax deductions will be made before you are paid. You will NOT receive dividend payments. Read More. Umbrella Companies Explained Umbrella companies are an increasingly popular choice for contractors and freelancers — whether they have been offering their Tier 2 Visa's Unfortunately visas can only be sponsored by the company for Award winning service!
Sign Up. How Umbrella Companies work? Umbrella Companies Flow Chart. You may also like to read. Sign Up. How does an Umbrella Company calculate my take home pay? Calculate your take home pay.
Umbrella take home pay per week. View the full calculation. Limited take home pay per week. Breakdown of your pay Income 0. I agree to be emailed my calculation. Calculator assumptions. You may also like to read.
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