Using An Umbrella Company To Meet Your Tax Liabilities

Posted on September 3, 2010
Filed Under Taxes | Leave a Comment

If you are a freelancer shopping around for an umbrella company, there are a few things to look for in a firm. Some companies advertise with misleading statements and claims, so it’s best to get all the facts and know what you’re looking for.

The first thing you should know is that while many umbrella companies claim to be IR35 compliant, the truth is that they all are. Since the only option is to be paid by PAYE, being compliant is irrelevant and is just an advertising manipulation trick. One sign that a company is not trustworthy is if they claim that you can submit expenses without receipts. That may be true, but the HMRC will likely investigate the company eventually, and you will be held accountable for any expenses you cannot prove.

Look at the firm’s fee structure before you sign up. While you won’t find many, there are some companies will charge a rate based on your earnings rather than a flat fee. This could cost you quite a bit more if your earnings are high, and will increase with your earnings. Another thing to watch out for is hidden sign up and exit fees, as well as penalties if you decide to terminate your contract.

Ask the company how long it takes them to pay clients. Some umbrella companies are slow to send out invoices, and in turn, are slow to pay. For some freelancers, timely payment is a very important detail, but can easily be overlooked. Find out if they take money from your pay for future payments like holiday and sick pay. This may be a desirable service for you.

Make sure they have good customer service. It’s great that they have a quick online system, but how do they do when you need to talk to a live person for assistance? If you call with a problem, how long will it take them to get you the help you need? Find out if you will have to deal with whoever answers the phone or if you will have a designated manager for your business.

Ask the umbrella company for client testimonials and references. Word of mouth is always a powerful statement about a company, so ask colleagues and friends for referrals. More than likely, they will have plenty to tell you about both good and bad umbrella companies, so use their experiences to your advantage. Knowing what to look for in an umbrella company and asking the right questions will help you find one that’s right for you.

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