If you are working through an umbrella company you should make sure that you have the right employment contract. This means that you will be treated as an employee and you will be entitled to the employment rights such as holiday pay, statutory sick pay, maternity pay etc.
If you are a contractor , freelancer or an agency worker where an agent finds work for you, you might be advised by someone that you work through an umbrella company.
Who will pay you ?
Since you are an employee of the umbrella company the umbrella company will be your employer, they will have all the responsibilities of an employer for example the umbrella company will collect the earnings from the client you were working they will then deduct the following taxes :
- National Insurance contribution of the employee that are due in the pay under PAYE
- Income tax
After collecting the taxes they will pay the net salary to the employee.
An umbrella company however cannot deduct employer national insurance contributions from the employee's gross pay.
As an employee of an umbrella company you don't have to worry about the taxes that you have to pay to HMRC, however, you should be aware of the taxes that are being deducted to check if the right amount of taxes are being deducted and the company is not involved in any kind of tax avoidance.
If the right amount of the taxes are not paid on your behalf you will have to pay interest and penalties.
If you are a contractor and you work through an agent, that is if the agent finds work for you then the agent will collect your earnings from the client for whom you worked, the agent will then deduct their fees, any other administration cost and then give it to the umbrella company. The umbrella company who is your employer will pay you the wages after deducting the taxes as mentioned above.
An umbrella company can be your personal limited company or it can be a services company.
If it is your personal limited company or even if it is the services company you have to make sure that you understand off-payroll working rules.
Off payroll working rules make sure that you pay the right amount of taxes.
The changes in IR 35 are to be implemented on all the payments made after 6 April 2021. If you work for a large or medium-sized company in the private sector as a contractor, your client will be responsible for determining your employment status. If they determine that your contact is within the off payroll working rules then the agency and the client will be responsible for deducting the NI and the income tax from your gross pay.
If you have set up your own umbrella company and you decide to work through that company you cannot be self employed. In fact you will be an employee and pay the relevant taxes as described above. You cannot take dividends out of your umbrella company.
If you are a contractor and you want to make sure that you are working through the structure that is more tax efficient and it does not involve any tax avoidance scheme you can contact accounts in Croydon, London. We have experienced accountants who can give you tax advice and work out the taxes for you as well. Don't hesitate to contact Taxaccolega by calling at 020 8127 0728 or send us a message here we will be happy to help you.