The rules and regulations that govern the world of work are frequently highly complex and understandably can swallow up a lot of time in administrating aspects of a small business such as payroll and making tax returns. As the world of contracting continues to expand both for freelancers and contractors, many would prefer not to have the added burden of dealing with their financial matters.
A tried and tested way to organize this is through an umbrella company, a specialist management company that provides practical and effective solutions for all a contractor’s financial requirements. It gives individual freelancers more time to devote to their paid work, and for small businesses that are working on projects that have large volumes it can be a godsend to have another organization sorting out all the administrative details.
Keeping in line with legislation
The rise of umbrella companies has come about because the government’s tax collectors, Her Majesty’s Revenue and Customs (HMRC), decided to crack down on contractors who worked through personal services companies. This meant they could minimize the amount of tax they may have been liable to pay, as well as avoid paying National Insurance contributions.
The government brought in IR35 legislation to stop this practice and to gain extra tax revenue through HMRC. Contractors operating a personal service company may be deemed to be employed, depending on the form of contract they are working under. If this is the case, they will be liable for tax and National Insurance that would be backdated to when the contract started, so it could be a considerable amount of money.
A good umbrella company takes away the option for contractors of forming a limited company and potentially running into IR35 compliance problems. The contractor is taken on as an employee of an umbrella company and gets paid a combination of salary and expenses, together with pensions where appropriate.
Helping businesses to save money
For any business or freelancer, the bottom line is crucial. As an umbrella company will take away the hassle of administration, payroll and taxation, the necessity to hire people to deal with these in-house is taken away, making it a cost-effective way of working.
In its simplest form, for payroll, the contractor submits a signed timesheet to the umbrella company, which invoices the agency. On receipt of the funds, the contractor is paid at once. The companies will also deal with expenses claims. Expenses are another area where there are complicated rules, and an umbrella company knows exactly what can and can’t be claimed as a legitimate expense.
Although management of a contractor’s administration, payroll, accountancy and expenses is the major part of an umbrella company’s work, it’s not necessarily all they do. For example, Atlantic Umbrella offer a range of services to complement the main core of the operation. Many people working as contractors can find it difficult to get a mortgage, so the company has the right contacts to be able to help, and can also help with getting private medical insurance cover.