Tax Umbrella Companies
If you are thinking of casting off from the shores of being permanently employed and heading into the potentially stormy, but nonetheless lucrative, waters of contracting or freelancing, then you need to consider how you will set up your new business so as to minimize your long term tax liabilities, while maximizing your income and making it simple for your clients to deal with you. So, what are your options? You basically have two – set-up a limited company or utilize the services of a tax umbrella company. Setting up a limited company is the most tax efficient way to operate, and you can claim back all kinds of expenses (equipment, software, etc.). If you are only concerned with paying the least amount of taxes possible, then it is probably the best option for you. As you would expect though, there are lots of legalities and paperwork involved with setting up a limited company. There is the cost to factor in too; it is not a cheap thing to do. As well as paying to register the company, you will also have to pay for a solicitor and an accountant. If you would prefer to avoid the hassles involved, and to focus on simply making money, then a tax umbrella company is what you need. What a tax umbrella company does is take care of your invoicing, payments and tax contributions. They do this in the same way as your previous employers did. They literally follow exactly the same processes. Technically, you are employed by them, but that is only for tax purposes, and not in a practical sense. Obviously, they have no control over you, and cannot tell you what to do or how many hours to work. The tax umbrella company will pay you weekly, fortnightly or monthly (whichever you agree on when signing a contract with them), and the funds will show up in your chosen bank account, minus your tax contributions and the umbrella company's fees. The umbrella company should only take a set fee (again agreed on before you sign a contract), and not a percentage of your earnings.
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Tags: business, Finance, tax, tax umbrella company