Umbrella Companies - How They Can Help You With Your Tax Liabilities
28th August 2010 by Tax Man No CommentsIf you are a contractor or freelancer, or planning to become one, an important consideration that must be taken into account is the tax liabilities that will be incurred as a result of your status. It is imperative for an independent contractor to have an effective system in place. If not, you could receive a large tax bill out of the blue - possibly even a fine. It is a balancing act however, because an effective tax system could hinder the ability your client’s ability to pay you. So, the system adopted needs to take both of these aspects into consideration.
Independent contractors have the option of establishing a limited company. This method reduces your tax liability and provides the best options for claiming expenses. However, these companies tend to exhaust mush time and expense to get established. For this reason, a tax umbrella company should be considered. This type of company can alleviate the tedious aspects of owning a company, which allows you to concentrate on the important part - growing your company and generating profits.
When you enter into an umbrella company, you are basically counted as an employee of the company. However, this does not mean the company runs your business. You simply exist within the company for both tax issues as well as employee payment options. Upon entering into the agreement, an employee of the umbrella company will work with you. This employee will handle your invoices, assist you in tax decision, and assist with your financial structure. There is always the option of allowing him to handle it all as well. It will still be your company, under your control.
The only step you need to take is to send a some personal information as well as the method you use to bank. Once they receive your banking information they will handle the rest of the paperwork. When you are paid, the company will direct deposit the amount into your bank account. This amount includes what your clients have paid less the amount that the umbrella company takes as its charge. The payments will come either monthly or fortnightly. The way you receive the payment is completely up to you. It just takes a couple of days for everything to get set up.
Not all umbrella companies are the same. You have to look into each prospective company in order to decide which you want to sign up with. Make sure they have the experience it takes to do the job correctly and that you thoroughly understand the way they do things. Some of them pay differently or handle taxes differently. Be wary of any company which promises “special tax breaks” or other services which seem too good to be true. No one gets special benefits from the tax office.
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