Post by Umbrella Company Net on Apr 1, 2017 7:19:42 GMT
What is a PAYE Umbrella Company?
A PAYE umbrella company can be seen as a form of intermediary company that sits between your company, the contractor that you use, and your clients. Why would you need a PAYE umbrella company? The umbrella company can deal with the reams of admin that are part of contracting – management of payroll, dealing with invoices, sorting out taxes, et cetera. When an umbrella company handles this kind of work for you, you have more time and energy to focus on the work that you prefer to do.
Furthermore, by hiring a PAYE umbrella company, you don’t have to worry about taxes since the umbrella company handles the payment of taxes on all of your work. For all the work that you do, your clients make payments to the umbrella company. The umbrella company then processes these payments before passing the payment over to you.
What do umbrella companies in the UK do?
- Invoice the client
- Deal with your taxes
- Pay you
Would you still be working for yourself?
In a sense, you’d be working for the umbrella company, but you would still be contracting for yourself and selecting the clients you wish to work for, and you’d still be your own boss. Simultaneously, however, and technically speaking, you would be an “employee” of the umbrella company.
After you become an “employee” your umbrella company would handle your payments of National Insurance, and you will earn your income via PAYE. As such, you will not be troubled by the HMRC, and you no longer have to be concerned about chasing your clients for money or making out invoices.
Can you still claim for expenses?
When you are working for an umbrella company, you can still maximise income through expenses, as you would if you were a limited company contractor.
As an example of this, because your working situation will be within the structure of employee/ employer, and because you will work at different locations, each location is determined as a “temporary workplace” which means you can offset subsistence and travel expenses for travelling to and from site, and you can claim for expenses incurred on-site, too.
What about IR35?
For most contractors, the legislation surrounding IR35 causes them to wake up during the night in a cold sweat. However, if you choose to sign up with an umbrella company, it becomes entirely irrelevant because you will be paying the correct amount of NIC’s and PAYE, and as such, you will not be impacted by IR35.
How does signing up to an umbrella company work?
You simply sign up with an umbrella company based in the UK, after which you sign an employment contract with them. Once that’s done, you carry on working as you normally would, with the difference being you as well as your client's sign timesheets that are passed over to your umbrella.
Your umbrella invoices the client, the client pays the umbrella; the umbrella makes deductions for your tax and your NIC’s, after which, they pay you.