Are You Having to Work Through an Umbrella Company? What You Need to Know?
Posted 23/03/2021
With the introduction of the IR35 reforms on 06/04/2021, many clients are now choosing to offer work through Umbrella Companies.
What is an Umbrella Company & What Do They Do?
The Umbrella company will be your employer and will invoice the client for the work that you complete.
From the fee that the Umbrella Company receives, they will deduct Employers National Insurance, Employer Pension Contributions, Apprenticeship Levy, Holiday Pay & their fee.
The remaining amount will be shown as your ‘gross pay’ on your pay-slip and will be subject to PAYE tax & National Insurance deductions, after which will be your ‘net pay’.
Is it Worth Shopping Around for an Umbrella Company That Offers Me a Higher Net Pay?
The only difference in net pay being offered between umbrella companies should be the difference in their fee, and possibly a light difference in pension contributions.
All of your Gross pay should be subject to PAYE tax & National Insurance.
Be wary of Umbrella Companies offering to deduct expenses that you may have deducted previously through your own Ltd company. This is a different scenario and the rules are more strict as you are now an ‘employee’.
The Umbrella Company should provide you with a full calculation of all deductions, so that you can check that everything is correct.
If it sounds too good to be true, it probably is!!!
Do I Need A Limited Company to Work Through an Umbrella Company?
If you work through an Umbrella Company as their employee, you do not need a Limited company.
The Umbrella Company will provide you with a P60 after the end of the tax year, as with all employment, and you will add this income to your personal tax return, if you complete one.
If you do not complete a tax return for other reasons, you do not need to register for self-assessment if you work through an Umbrella Company.
The Government Guidance on points to consider when choosing an Umbrella company can be found at https://www.gov.uk/guidance/comparison-and-broker-websites-marketing-umbrella-companies-are-not-always-what-they-seem-spotlight-55
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