If you are a contractor who works with a wide range of employers over the course of your job, you may be able to benefit from using an umbrella company. This article looks at how umbrella companies can help contractors meet their tax liabilities. But first, what is an umbrella company? Essentially, it is a company that works on behalf of contractors, acting as their employer and often dealing with the people they are contracted to. Such contracts usually involve a fixed term assignment.
Contractors use them for several reasons, one of which is that they are very useful when it comes to sorting out issues of tax. Without using the services of an umbrella company, a contractor would more than likely have to sort out their own tax contributions. However, tax is taken care of on their behalf if they have an umbrella company acting as their employer. The company charges a fee in exchange for this service and they usually deal with the contracts as this limits liability.
This means that it is generally the umbrella company that pays the contractor, allowing them to benefit from things such as sick pay. They will also help to make issues of tax much easier by taking care of everything related to PAYE. The contractor will normally have to submit time sheets and other relevant information to the umbrella company. The company will then invoice the company that has contracted the work in order to get the payment for the contractor.
Expenses are another issue that contractors need to think about and using an umbrella company can help to make this easier, too. For instance, you will normally be asked to submit an expenses report along with your timesheet so you won't lose out for any money you may have spent in the course of your work. Depending on the nature of your expenses, you may be able to offset them against your tax payments, but bear in mind expenses are ultimately your responsibility - not the umbrella company.
Also, using an umbrella company to help meet tax liabilities is often simpler for many contractors than it would be to set up their own limited company. This is because setting up and running a limited company can come with a large administrative burden, which adds to the costs of working for yourself. Using an umbrella company instead allows contractors to get the best of both worlds, allowing them to work for themselves without so much administration and with assistance on issues related to tax.
Contractors use them for several reasons, one of which is that they are very useful when it comes to sorting out issues of tax. Without using the services of an umbrella company, a contractor would more than likely have to sort out their own tax contributions. However, tax is taken care of on their behalf if they have an umbrella company acting as their employer. The company charges a fee in exchange for this service and they usually deal with the contracts as this limits liability.
This means that it is generally the umbrella company that pays the contractor, allowing them to benefit from things such as sick pay. They will also help to make issues of tax much easier by taking care of everything related to PAYE. The contractor will normally have to submit time sheets and other relevant information to the umbrella company. The company will then invoice the company that has contracted the work in order to get the payment for the contractor.
Expenses are another issue that contractors need to think about and using an umbrella company can help to make this easier, too. For instance, you will normally be asked to submit an expenses report along with your timesheet so you won't lose out for any money you may have spent in the course of your work. Depending on the nature of your expenses, you may be able to offset them against your tax payments, but bear in mind expenses are ultimately your responsibility - not the umbrella company.
Also, using an umbrella company to help meet tax liabilities is often simpler for many contractors than it would be to set up their own limited company. This is because setting up and running a limited company can come with a large administrative burden, which adds to the costs of working for yourself. Using an umbrella company instead allows contractors to get the best of both worlds, allowing them to work for themselves without so much administration and with assistance on issues related to tax.