Can Someone Explain What Umbrella Companies Are?

Umbrella Companies provide a ready made payroll solutions for contractors, removing the administrative duties and responsibilities associated with running a Limited Company. An Umbrella Company will issue invoices on the contractors behalf, receive payments from end clients or agencies, calculate tax owed and National Insurance contributions which are due. At the end of this, you, the contractor will receive your net pay in your personal bank account.
Contractors are employed in much the same was as any business which employs staff. Your Umbrella Company should be paying you through PAYE, deducting Income Tax and National Insurance contributions from your gross earnings and issuing you with a P45 if you leave their services or a P60 at the end of each tax year. Your employment contract should be drawn up as if you are a permanent employee with the expectation that you will be working for the Umbrella Company for more than one assignment. Your home would be considered your permanent work place, any assignment you undertake is regarded as your temporary work place, this arrangement enables you to claim expenses, keeping in mind that you are only able to claim expenses that are wholly and exclusively for work purposes. Regardless of whether your Umbrella Company advertises that they have a dispensation, you must obtain a receipt for every expense that you claim, the reason for this is that HMRC can investigate you up to six years after you make a claim. If you claim for an expense where you cannot prove that you have incurred a cost, an HMRC investigation could result in you having to pay the underpaid tax, charges and interest. As an employee, you should also be covered by the Umbrella Companys insurance; this usually includes public and employers liability and professional indemnity insurance. The insurance provided and level of cover will vary from one Umbrella Company to the next, so it is worth querying what is provided if you have any concerns.
In summary, all Umbrella Companies use the same calculations laid out by the HMRC. This means that your earnings should not be any higher than they are with another Umbrella Company. The only difference would be the level of service you receive from them and the fees that they charge. Essentially an Umbrella Company provides a safe, simple and compliant method of employment for Contractors who do not want the hassle of running their own Limited Company.

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Article Originally Published On: http://www.articlesnatch.com

Tags: payroll solutions

, deducting Income Tax

, temporary work

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