What Does An Umbrella Company Do?

Umbrella companies act as employers for agency contractors

. An umbrella company will dispatch invoices for work carried out to clients, and when the money is received, the umbrella company will issue you with the payment. The idea behind them is to make life easier with regards to receiving payments and tax calculations.

Sending out invoices and calculating tax can take a huge amount of time. An umbrella company will deal with all that stress for you so you can concentrate on more important things. There are very few disadvantages; an umbrella company will take care of all your tax / VAT issues, financial accounts, payroll and spreadsheets - leaving you more time to concentrate on earning more money.

Once a payment has been received by the umbrella company, they may either make a payment to your bank account immediately or they may send you fortnightly payments including a pay-slip with information on the total amount received and any deductions made. The only variance in your earnings between different umbrella companies will be their fees. The reason is that you are paid via PAYE and all deductions made are determined by the Inland Revenue, not the actual umbrella companies.

Be wary if an umbrella company offers a service that can reduce your income tax or national insurance contributions as this is in fact illegal. You are required to notify the umbrella company of any expenses you accrue whether they are chargeable or not and the company will take care of them for you either by refunding you or by detailing them as tax benefits.

Therefore, your taxable income will be reduced by the value of the expenses. That is not to say that expenses can be used to reduce your tax bill. Anything that you claim must be allowable by the Inland Revenue and must be a cost to you personally that is entirely attributable to the work you have done. An umbrella company should only charge you a fixed fee as if you earned $50 a day or $500, their amount of work would be the same.

If your costs to the umbrella company exceed $50 a week, then you are certainly not getting a great deal. Stay away from companies offering fees of a percentage of your earnings. Your agency, if you have one, may recommend particular umbrella company to you but that is not often the best option because they are basing that recommendation on an incentive rather than giving their honest opinion. So, to find yourself the best possible deal, you should look for testimonials and reviews online.

by: Mark Walters

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