5 Reasons For Contractors To Choose An Umbrella Company

By Author: nitin chauhan
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Contractors normally operate in one of two ways, either by using a Limited Company or by being part of a Contractor Umbrella Company.



Here are reasons for a freelancer to operate using an Umbrella Company



1. The Contractor is caught by IR35.



If a contractor is caught by IR35 he or she is best served by being inside an Umbrella Company as they can claim a limited amount of expenses which they wouldn’t be allowed to do if they simply paid the IR35 tax.



2. The Contractor is not sure if he or she is caught by IR35



The taxman decides on a contract by contract basis whether a contractor is inside or outside of IR35. This means that the contractor may be inside for one contract and outside for the next contract. In this situation the contractor may want to operate through an Umbrella Company just to be on the safe side.



3. The Contractor wants to concentrate on Contracting



Umbrella ...
... Companies treat contractors as employees who can claim certain expenses. Many contractors don’t want to handle their own VAT and book keeping and are happy to pay someone else to take this responsibility off their hands so that they can concentrate on what they do best and that is contracting.



4. The Contractor doesn’t want years of an IR35 Tax Investigation



Many contractors who operate through Limited Companies have spent years under investigation for IR35 tax from HMRC. Many of them are then found to be outside IR35 but have wasted a lot of time and energy as well as worry in doing it. Others have been found to be inside of IR35 and have had to pay several years of back tax, interest and penalties sometimes amount to over £100,000. Many contractors don’t want the worry of having an IR35 tax investigation hanging over them



5. The Contractor can claim Expenses



Although the contractor can’t claim as many expenses as they would do if inside a Personal Service Company they can still claim a limited amount of expenses, for example, they can claim travel expenses, overnight expenses if they are staying away, pensions, memberships of professional organisations and contributions to charities which are all tax deductible.



It is every contractor’s choice depending on the way they operate. Are they ‘disguised employees’ or are they genuinely in business on their own account?



Do they want to manage their own affairs or do they want to concentrate on contracting and leave the admin to others?



Gerry McLaughlin is the CEO of UK IT Contractor umbrella companies website www.ITContractor.com.