There are quite a number of complications involved when one is working as a self-employed person, as compared to when you are an employee at some company. Contractors can however become employees of an umbrella company removing most of those difficulties that arise with regard to contracting flexibility. These companies are usually a pillar for employers’ contractors. They normally employ contractors who are then helped with all the administration matters like paying them a wage or even processing their payments. For those services, the umbrella company will normally take some amount as fee, and this is the amount that is deducted from the amount of wages that a contractor is going to receive. These contractors do not work independently, but they provide their own services through these umbrella companies. Most of the time, these contractors hire agents who source for them clients, rather than doing it themselves. In such a case, the client normally pays the agency, who in turn pays the umbrella company, and it is now up to the company to pay the contractor after they have deducted that initial fee.
Income tax is normally deducted from the contractor’s wages, through PAYE. National insurance is also automatically deducted by this company, before they can pay the contractors. This means that the contractors, or rather the workers will only receive their after tax pay that they are entitled to. When one wants to reduce the amount of tax that they are paying, using these umbrella companies normally make the tax outgoings less, and now you can be paying tax through PAYE, just like an employee.
When you are working using some umbrella company, it is easier to claim expenses that are appropriate. It can reduce the tax amount that a contractor pays as expenses, as the expenses are normally separated from their salaries, and so income tax does not affect them. It is not tax avoidance or evasion means, as all those claims have to be clear and legally legitimate, and the umbrella companies are always very careful to observe this. Watch a video about umbrella companies here at https://www.youtube.com/watch?v=lHDWo80UR1E.
Any allowable expenses are the incurred expenses by the contractors, as they are performing their duties, which could include such things as travel, drinks, food, accommodation and training. When one chooses to work through the umbrella PAYE company, the contractor’s process is normally made a lot easier. The contractors will only submit all the details and receipts of whatever expenses were incurred by this company, and the expenses are then paid to them alongside their salary.
Umbrella Company Options 