If you’re a contractor or pay self employed tax, you run the risk of paying substantially more self employed tax than you absolutely have to. By setting up an umbrella company you can work to simplify the processes through which you are remunerated for your labour, and take back lots of everyday expenses against your tax liability. By way of an example, if you were a consultant hired by a pharmaceutical company on a self employed basis, you might decide to create an umbrella company which could then hire you on a permanent basis, and be remunerated for your work by the company to which you are contracted. The umbrella company could then remunerate you as a permanent member of staff rather than as a contractor. The other big benefit to umbrella companies is that you can also, and very easily, declare legitimate business costs as expenses, which the umbrella company would be able to treat as operating costs, deducting them from the moneys received from the company to which you’re contracted before you are paid, and crucially, before your tax calculations are made. The costs that the umbrella company might be able to remove from your self employed tax in this manner might include travel expenses, your wifi at home if you use it for work. You could also choose to have your umbrella company provide you with a company car and business telephone, and to these benefits can then be deducted from your taxable income and will accordingly minimise your tax bill.

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