These umbrella companies assist contractors by helping them avoid having to deal with IR35 legislation and not have to set up a limited company. They do this by taking on the role of their employer and invoicing a contractors clients.

These companies offer a service to contractors by acting as their employer in any temporary contracts they are working under. Essentially the services Contractor umbrella companies offer you means you do not have to create your own company. Using their tax expertise they help calculate how much tax should be paid as well as filling in the necessary paperwork. They have really taken off in a big way after the UK Government introduced the IR35 legislation. Many claim to have saved their clients on average thousands of pounds in costs and to have maximized income for them.

Contractor umbrella companies have proved to be quiet popular as they can lower the amount of tax a contractor may have to pay. Their other main advantage to you is that they save you time by doing most of the form filling on their clients behalf. Many of these companies work in partnership with recruitment agencies and other service providers like accountants and book keepers. They offer various services and solutions to their clients like making payments to contractors through PAYE dealing with legal employment law issues. They can offer accountancy services to help organize your financial affairs, provide advice on professional Indemnity insurance, as well as providing payroll services to save you from doing these things your self.

Eventually how much tax you pay will greatly depend on your tax code, your earnings, how much National Insurance contributions you have paid. Some companies provide a online net pay calculator on their websites to help you calculate your costs, you should be aware that they may not always be very accurate. Remember that on top of all of these costs you will be charged the Contractor umbrella companies fees. They typically have two sets of charges the first being a gross charge and the second being a net charge. The net charge is normally levied after tax.

When looking to become a client of a umbrella company you are advised to ask for testimonials as well as their payroll service. Enquire how long it takes them to transfer cleared funds into your bank account, is it the same day or is there a delay. Read any contract carefully to ensure there are no hidden costs.

The alternative to a contractor seeking the services of a Contractor umbrella company is for them to set up their own limited company. Doing this will cost money and may be time consuming as you will have to submit accounts and company reports etc.

If you currently work through a recruitment agency and then decide to use a umbrella company you must inform the agency so they can amend all of your contracts accordingly. You will be required to provide the umbrella company your bank and tax code details like your P45 from your previous employer. You will then have to sign a contract between yourself and the company, agreeing to their payment structure and terms and conditions.

Financial advisers from umbrella companies will advice you on your expenses like a daily subsistence allowance for any food and drink you buy, and also on which purchases you have to keep your receipts for. Other allowable expenses include claiming for travel expenses, lodgings like staying in hotels.

The inland revenue will require workers to report their expenses in detail. However to help reduce all of this paperwork a umbrella company can apply for a special dispensation scheme. This scheme allows the companies accountants to process and submit certain types of expenses without having to produce or list each bill and receipt. They do this by using prearranged scale rates for each expense thereby they do not have to record these on the Inland Revenue P11D form. A contractor should be aware that they are responsible for any incorrectly claimed dispensation. On occasions HMRC randomly selects companies for IR35 investigation and will investigate them so they should keep all of their receipts to back up their submissions.

Umbrella companies are different from Managed Service Companies or MSC as they are known. The main difference being that in these companies member contractors will have shares in the MSC and subsequently be entitles to receive shares and also dividends.

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IR35 accountants