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An umbrella company is essentially an intermediary between you and the company you contract for. You are employed by the umbrella company, which means IR35 is never an issue, because you pay PAYE/NIC on your earnings and the umbrella company handles all your specialist contractor accounting administration, including invoicing, tax, VAT and NIC, for a fixed fee.
Though you are not on the umbrella company’s payroll, your pay is still determined by your contract agreement; the umbrella will take care of invoicing and chasing your money for you. It will also help you claim any business expenses, offsetting them against your tax obligations.
To put it in simple terms, because all of your monthly business expenses are deducted from your salary before any tax is applied, you only pay tax on the net amount earned. This means you take home more of your hard earned money, which is just as it should be.
Using an umbrella company is a great way to get started with freelancing or contract work, especially if you are not sure if this kind of venture is right for you. Working for an umbrella company allows you to test the waters of contracting without making the serious commitment of setting up as a limited company. You can always consider a more permanent option, such as forming a Limited Company, further down the line if things work out for you.
For more information on how Crystal Umbrella can support your Agency when AWR comes in, please contact
Tim Cumberland on 0800 848 8888.