Umbrella companies are ordinary limited companies which take the place in the labour supply chain of contractors paid through their own limited companies.
The taxes paid with an umbrella company are very similar to the tax and NI deductions when IR35 applies and are generally used to avoid the responsibility of running a limited company.
So many contractors and agency workers use an umbrella company where IR35 would apply, and they decide that a limited company is not worth the cost or responsibility, or sometimes because and agency or hirer requires it.
When paid by an umbrella company, until a change in legislation is enforced in April 2020, the employment income will be around 85%-87% of the total payment received by the umbrella company from an agency or other hirer, and this includes holiday pay. The balance pays the umbrella company fees and the Employer NI/pension contributions on that employment income.
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This assumes a personal tax allowance of £12,500 and that the agency or hirer has included holiday pay and employer costs in the pay rate to be paid to CWC Solutions.
CWC Solutions has provided a range of services to freelance and small businesses since 1999, while its partner Aequalis Accounting provides accountancy services to contractors paid under IR35 and the off-payroll working rules. Call us on 01268 745808 for more information.