As many contractors will know, the UK tax system is very complex which can at the best of times be very difficult to understand.
Key pieces of legislation, such as IR35, can often leave independent workers who deal with their own accounts confused and frustrated.
When it comes to paying taxes and sorting out accounts, many contractors seek out the services of an umbrella company as it removes the excess hassle associated with these tasks.
Here are just some of the benefits a contractor or freelancer can expect to gain when working through an umbrella company.
It saves time
When you choose to work with an umbrella company you are effectively an employee of that firm, while still maintaining the freedoms of an independent worker.
As a result of this you will be paid through a PAYE payroll, similar to that of a permanent employee. When you operate in this way, your taxes and accounts are taken care for you by the umbrella company.
They will deduct both your income tax and National Insurance contributions, meaning you don’t have to waste time filling out forms and calculating your taxes.
What’s more, an umbrella company will chase up your pay and send out invoices on your behalf, further saving you time!
Without having to worry about these extra administrative duties, you can focus more upon your current project, ensuring you do the best job possible.
As well as this, umbrella company contractors often find that more free time is available to dedicate to the family. This is because you dedicate much less of your week to sorting out paperwork and other admin tasks.
Most umbrella companies pay you directly and so you do not have to worry as much about chasing up your clients for any outstanding moneys you are owed. Again, this saves you time and energy which you can use for much more productive things like work.
Taking care of your own accounts is a lot of work on top of your actual job. Many contractors like the fact that an umbrella company removes the stress of tax returns as they meet all the deadlines for you.
What’s more, having an expert take care of your taxes is very beneficial as it ensures you that the chances of an error are slim to none. Mistakes can come back to haunt you even if they are nothing more than a little error.
HM Revenue and Customs (HMRC) could simply send back any forms you have filled out incorrectly (which may result in late fines) or you could be subjected to a full investigation.
With HMRC doubling its investigations into tax discrepancies over the last year, the last thing you want is a silly mistake hanging over your head.
Tax efficient expenses
Top umbrella companies give contractors the option to claim their expenses online. Not only does this make it much easier for you to sort out this aspect of your finances but it also ensures that it is taken care of in the most tax efficient manner possible.