What a Contractor Should Know About Umbrella Companies

Umbrella companies have grown over the past decade since it started in the middle of 2000. Using an umbrella company relieves contractors from working through their own limited company and offers a hassle free business structure. It is for this reason there are more than 200,000 people in the UK working through umbrella اقامة مستثمر في دبي, and the figures are only rising with more and more people joining the self-employed industry. Also, after the IR35 legislation started umbrella companies have become more common in the UK. Umbrella companies act as an employer to agency contractors who are placed on contract assignments usually through a recruitment employment agency in the UK.

You will receive an overarching contract of employment and become an employee of the umbrella company undertaking a variety of roles as suits your abilities at various different locations, these workplaces will be classified as temporary workplaces. This can let you offset subsistence and travel expenses reducing the gross salary and subsequently the amount of tax paid. This model is suitable for those contractors who work at different locations.

The IR35 legislation was introduced on 6th April 2000. It was first proposed by the Chancellor in the 1999 Budget. The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries. On 27 October 2014, HMRC announced that the ‘Business Entity Tests’ (BETs) of IR35 will be withdrawn from 6 April 2015. However, the IR35 legislation would still apply.

NMW applies to contractors who are employed by a compliant umbrella service provider as there is a contract of employment in place. Some umbrella companies pay their employees a salary below minimum wage and then make up the difference by including various expenses such as meals or travel costs. HMRC has stated  they are aware of ‘schemes’ whereby umbrella companies are avoiding paying the National Minimum Wage and that they view them as unlawful and will take action accordingly. 

How can you ensure you are choosing the right company? While many of them offer compliant and quality services there are a small number of companies that have put the image of the umbrella sector at risk. If you are just starting as a contractor and looking for an umbrella company, you will be swamped with hundreds of companies all making variety of claims and promises and when you hear one that sounds too good to be true, it probably is.

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