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There are a huge number of benefits to using an umbrella company to administer and mediate your work when contracting yourself to an employer, such as minimising your tax liability in a totally legal and candid way . If you work on a self-employed basis but contracted exclusively to a single business, you might want to opt for going down the umbrella company route . In order to get to grips with whether this option is the best option for you , you will first want to be certain of two things: will you be fiscally better off if you attach yourself to an umbrella company, and can you set one up without thoroughly upsetting and incurring the wrath of the Her Majesty’s Revenue and Customs? To find the resolution of these two massively essential queries you should find yourself an umbrella calculator and make sure that you have a comprehensive grasp of IR35.

An umbrella calculator is an online piece of software, commonly used by umbrella companies for “hire”, designed to permit the user to input his or her own fiduciary figures and a number of other variables , such as their hourly income , number of hours they usually work and common expenses such as overnight hotel bills and subsistence when travelling on business. Other variables you might put into an umbrella calculator will include business mileage and any other genuine business expenses. The purpose of an umbrella calculator is to use these variables to ascertain whether a person will be paid more working for an umbrella company or for themselves . The Umbrella calculator looks at all of the variables against the prevailing tax code and works out a net saving should the person decide upon the umbrella company route .

In addition to making use of an umbrella calculator, you would be well advised to ensure you understand and are wholly compliant with IR35. IR35 is the name given to a piece of British legislation set up to make sure that those who are taken on by an umbrella company do not benefit unfairly from their status . IR35 was introduced in 1999, before which time those who were employed by an umbrella company could legally take their salary as dividends , which were officially not liable for National Insurance payments. IR35 also worked against an umbrella company from being owned by different members of the same family, such that each of them might benefit from offsetting the company’s profits across each owner’s lower taxation echelons and personal allowances, which brought their their tax liability to the point of avoidance. In spite of regular consideration and review by various governments, IR35 remains largely intact and also on the whole unchanged since its creation .