How Does Paye Affect Me And Can I Reduce My Obligation?

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To the majority of people, Tax issues will always be daunting. A select few individuals have managed to unravel the clutter that is the UK tax system, but does it really need to be such a big headache? Or is it just smoke screens and mirrors? Tax calculations are relatively simple but the administration behind them takes up most of your time. Every individual receives a tax free allowance which changes at the beginning of each tax year. In the 2009-2010 tax year the tax free allowance was set at 6475. This limit is distributed over the whole tax year and your allowance depends on your payment frequency. If you are paid monthly, your tax free threshold is 540.00 per month and if you are paid weekly, your allowance would be 125.00 per week.
The UK operates on two tax rates, the first is for all income between 0 and 37,400 which is set at 20%, this is also referred to as the basic rate tax. Your allowance will still need to be taken into consideration with this calculation is done. If you are receiving income above 37,400 the tax rate is set at 40% also referred to as the higher rate. Your employer or payroll company will use these weekly allowances and tax tables to calculate your eventual net pay.
As you can see from above, tax may be easy to calculate, but it does involve lengthy administration which can become more difficult. It is in situations like these that anUmbrella Company will benefit you, as they have the capacity to deal with these matters effectively and efficiently. Umbrella payroll providers give contractors the opportunity to reduce their tax obligation by submitting expenses that are wholly and exclusively for business purposes. At the end of the day this gives contractors the benefit of going home with a higher net pay, which keeps their taxable pay lower and ensures they do not hit the higher tax threshold. If you are a contractor and youre not working through an Umbrella Company, you may be losing out!

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