There are a considerable amount of up sides to using an umbrella company to over see and act as a go between for your work when contracting yourself to an employer, including acting to bring down your tax exposure in a wholly legal and up-front fashion. If you’re self employed but contracted exclusively to a single business, you could choose to consider mediating your work through an umbrella company’s books. In order to understand fully whether this option is right for your circumstances, you may initially choose to be sure of two things: will you be financially better off if you work for an umbrella company, and can you work in such a fashion without getting on the wrong side of the tax man ? To answer these two fairly important queries you ought to avail yourself of an umbrella calculator and ensure you have a comprehensive grasp of IR35.

An umbrella calculator is a website tool or piece of software, commonly offered by umbrella companies for “hire”, which allow the user to enter their own fiduciary criteria and a range of other factors, such as their hourly income , number of hours worked and usual costs like overnight hotel bills and subsistence when away on business. Other variables you might put into an umbrella calculator will include business mileage and any other genuine business expenses. The primary use of an umbrella calculator is to use these variables to calculate whether a person will be paid more working for an umbrella company or for themselves . The Umbrella calculator examines all of the variables as well as the prevailing tax code and calculates a possible saving should the person opt for the umbrella company option.

As well as using an umbrella calculator, you ought to ensure you have a comprehensive grasp of and are fully compliant with IR35. IR35 is the name of a piece of British legislation designed to make sure that those who are employed by an umbrella company do not get an unreasonable advantage from their status . IR35 was announced in 1999, prior to which time people employed by an umbrella company could without fear of punitive action take their salary as dividends , which were exempt from National Insurance payments. IR35 also worked against an umbrella company from being managed by different members of the same family, such that they could benefit from offsetting the company’s profits across each owner’s lower income tax band and personal allowances, so as to reduce their tax bill to the point of avoidance. Despite regular consideration and review by intervening British governments, IR35 is still intact and also is pretty much unchanged since its inception .