Going it alone
These days, the number of people in the labour force who are working as freelancers or contractors is on the rise.
Contractors work in all sectors, from construction to the creative industries and technological fields, as professional consultants or even as high street temps offering administrative and secretarial services. More often than not, such independent workers are obliged to take care of their financial matters themselves rather than enjoying the benefit of a company accountant. This can be a daunting prospect. Everybody wants to get paid in full and on time and nobody wants to get on the wrong side of the taxman!
To assist in processing the unique red-tape needs of workers going it alone in their particular field, entities known as umbrella companies do the job for a modest fee.
Leaving it to the experts
An umbrella company offers a range of accounting services to contractors aimed at making the administrative side of their jobs simpler. Anybody who works independently already has enough to deal with seeking out and pursuing career opportunities. Having a service that deals with matters such as chasing payment, tax assessment and National Insurance payments can save time and, ultimately, money for busy contractors.
An umbrella company acts as an intermediary between a client and the contractor. The most important task it carries out is that of payroll services.
Specifically, once the contractor submits a time sheet, the company bills the client on their behalf. Depending on the umbrella company, contractors submit details of their hours manually or electronically along with any work-related expenses.
In addition to this, an umbrella company provides National Insurance and tax payments for the contractor known in the UK as PAYE (Pay As You Earn).
It is important to note that, within the PAYE system, the procedure for claiming professional expenses, known as a dispensation, is strictly monitored by the government authorities, as is the scope for reducing tax liability.
What does it cost?
Service charges vary from company to company. Some deduct a set fee on the gross salary that is advantageous to the contractor as it effectively reduces their tax contribution. Others take their fee from the net pay. A smaller number of these companies simply take a set percentage from a contractor’s earnings as their cut.
Payment schedules also differ across the board, with some umbrella companies forwarding salaries only when they receive funds from the client while others pay on a fixed date regardless.
It’s not just about tax
Many umbrella companies can also support contractors in financial areas that aren’t directly related to their jobs. Advice on mortgages and pensions, even on eventually forming a Limited Company when the time is right, are stock and trade for a large number of these companies.
Why it’s worth it
Keeping on top of payments owed, as well as tax and National Insurance contributions, is essential to the present and future financial health of anyone who works independently.
An umbrella company can take the stress out of money matters and, at a small investment, ensure financial peace of mind.