Contractor Take Home Pay: Perks of an Umbrella Company

Introduction:

An umbrella company is a standard company that recruits contractors with the help of a recruiting agency for working on assignments. Umbrella companies sign a contract with these recruiting agencies who supply them with contractors. These contracts work with the company on a fixed term contract. They are supposed to complete the assigned work in the pre-agreed period, at the completion of which they submit a timesheet to their respective manager. The manager then presents the timesheet to the umbrella company and the agency on the account of which the contractor takes home pay.

      All UK based companies pay contractors on the basis of PAYE (pay-as-you-earn). In simple words a contractor pays the tax in the same way as a permanent employee. Note that all the umbrella companies work under or follow the same rules and guidelines which means that the way of recruiting, working and paying all remains the same in all the companies. To understand contractor home pay it is important to look in brief about IR35.

IR35:

It is legislation that allows HMRC (Her Majesty’s Revenue and Customs) to collect additional payment where a contractor is an employee in all but name. It is important in order to address the problem of ‘disguised employment’ which mostly happens where organization engage workers on a self-employed basis usually through an intermediary. Following outside IR35 means that one is operating a ‘genuine business’. This ensures that the person is able to pay a salary, draw the remainder of income as dividend and is responsible for his/her tax paying. Following inside IR35 means one is considered an employee of the end client and so is subject to PAYE. This ensures that one is paying an appropriate tax every year at the end of it and he/she is supposed to reassess the status whenever one begins a new contract. Well let us understand how all this is determined. For instance, it matters whether the client has to provide the contractor with work or does the contractor have to carry out every work as the client requests?

Contractor takehome pay:

Umbrella company are preferred by people because of their ‘hassle-free’ nature. You can be appointed quickly and can start working within a matter of hours. PAYE schemes offered by the umbrella companies is best for the contractors. This gives contractors an upper hand unlike in the case of administrative obligations carried by limited company contractors. Even in case if somehow one gets ‘inside IR35’ then an umbrella scheme could actually be a solution for one. These umbrella companies can be of great benefit if one can make the best choice. Moreover, there are certain ways and means available through which one can decide the best home pay by an umbrella company. For instance, there are online calculators that help people to calculate a contractor take home pay– inside IR35, outside IR35 or through an umbrella company.

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