The purpose of an Umbrella company is to make life simpler for contractors while maximising their earnings, by taking responsibility for administrative matters and compliance on behalf of the contractor, and reducing the amount of tax that they pay.
The locum becomes an employee of the umbrella company and contracts of employment are between the locum and the agency or the client and the umbrella company.
There are benefits to the locum in being an employee of the Umbrella, as they can claim travel and subsistence expenses that would not be available to an employee deemed to be based ‘onsite’.
The Umbrella charges the worker a fee for the provision of its service, but typically the locum remains in a stronger financial position than someone on PAYE as an employee of the client.
Pet Medic Recruitment work with a number of reputable Umbrella Companies and details can be found on our useful links page.
By operating as a limited company, the affairs of the business are separated from your personal affairs. Therefore, in the event of any financial difficulties or legal disputes it is unlikely that you will be held personally responsible.
Companies are accountable for corporation tax, currently charged at 20% for companies making profits of less than £300,000. Individuals must pay income tax at rates of 20%, 40% and 50% depending on the level of income. If operating through a company, you will need to consider the most tax efficient method of extracting profits from the company – for example, salary versus dividend.
If sales exceed £77,000 in a 12 month period, a company must register for VAT. This brings with it certain administrative obligations, as well as the pricing impact on customers.
Many organisations offer the services of setting up new companies and carrying out company secretarial matters such as filing of annual returns and completion of statutory accounts. Alternatively these tasks can be undertaken by a director or employee of the company itself.