As a contractor, one of the most important decisions you can make is whether to establish your own limited company or work under an umbrella company. Though there are plenty of benefits to contracting through your limited company, a growing number are turning to umbrellas for the simplicity it offers.
We have outlined below what an umbrella company does and why this may be the solution for you.
What is an umbrella company?
An umbrella company is a separate company that employs contractors working on fixed-term contracts, serving as an intermediary between the contractor and their end client or agency. The principle function of an umbrella company is to organise payment for the contractor. To do this, the umbrella company collects the contractor’s earnings from the end client or agency and then pays it onto the contractor after tax and National Insurance Contributions have been deducted.
Is an umbrella company best for me?
If you earn less than £25,000 or are on a short contract and don’t intend to stay contracting for long, an umbrella may be the best option for you. Though you would take home less when compared to working through a limited company, many contractors enjoy the simplicity of working under an umbrella.
Contractor expenses using an umbrella company
By claiming all appropriate allowances and expenses you can minimise your tax bill; however, this is not a way of avoiding tax. Receipts should always be kept for all the expenses that you claim. Remember, it is you who HMRC will investigate and not your umbrella company. Be cautious of companies who say you do not need to keep receipts and can claim for things you have never actually bought. If you can’t prove a purchase, HMRC will view it as tax avoidance.
A contractor umbrella company to support you
Whether you decide to go limited or use the umbrella option, support is available. SJD Accountancy provides umbrella company services to contractors and freelancers through its sister company, Parasol.
For more information, you can visit the Parasol website below.
Are you looking for advice to conduct yourself as a contractor?
The Best Advice Team at Parasol are on hand to help. Complete the form below and they’ll call you back to discuss the right option for your career.
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