Making the switch to an umbrella company
There are several benefits to becoming a contractor and moving from an agency payroll provider to the services of an umbrella company. The most often-cited reason is the fact that you are able to lower your tax burden and effectively make more money by offsetting allowable business expenses against tax. Claiming expenses can further take time and effort particularly if this is not something that you were not used to doing before.
Using the services of an umbrella provider such as Paystream would take away a lot of the administrative burden that goes with contracting and would reduce the amount of paperwork that you would otherwise have to organise yourself. Same as your agency payroll provider, the umbrella company will deduct PAYE and national insurance contributions on your behalf. It will further provide you with a payslip and deposit your net earnings directly in your bank account.
Something that is likely to be new to those first making the move from a salaried position into contracting is the necessity to manage your money effectively. No one is ever guaranteed they’ll receive a steady stream of work and you won’t be earning while you aren’t completing a contract, making it essential that you can plan for this and have cash available to fall back on.
This will often mean putting aside money regularly in a contingency fund.
Any periods of illness that leave you unable to complete contracts or holiday will result in lengths of time where you are not receiving any income.
Umbrella companies will often hold back a portion of the amount you earn each month and use this as holiday or sick pay should the need arise. This means that you do not need to fear for your livelihood if you are ill and you can also take holidays without worrying persistently about not earning while you are away.
A large number of contractors underestimate the amount of money they are entitled to claim back by way of expenses, whether that is for travel, accommodation, equipment or other items and services.
However, an umbrella company will advise you on what it is that you can and cannot claim for, often resulting in extra cash you might not have considered on receiving.
Of course, they will also inform you if you are trying to claim for something you shouldn’t, making sure you don’t receive a nasty surprise from HM Revenue and Customs.