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Umbrella Companies

Opening the umbrella

The following scenario outlines how umbrella companies work.

Like many contractors, Geoff doesn’t have the time or resource to administer his own limited company. So rather than go to the expense of setting up his own limited company, Geoff uses the services of an umbrella company.

As a result, Geoff does not have to worry about the accountancy and tax issues associated with a limited company so he can free up his time to concentrate on his contracts.

In order to get paid each month, all Geoff needs to do is fill in his timesheet and send it on to his umbrella company provider. The umbrella company will then send an invoice to Geoff’s end client or recruitment agency.

Once the recruitment agency or end client has received the invoice, it will send the necessary funds to the umbrella company which will send the money on to Geoff after they have deducted their fee.

Such structures used to be quite lucrative for contractors like Geoff who could make big savings on their tax and NIC contributions by having the bulk of their money paid as a dividend.

MSC legislation - closing the umbrella

But since the Managed Serviced Company Legislation was introduced in 2007, the only legitimate umbrella companies left are PAYE umbrellas.

As a result, Geoff had to move to a PAYE umbrella company and all his income is now treated as salary. This means that Geoff now has to pay employer’s NI, employee’s NI and PAYE on all his income.

As a result, Geoff has seen his take home pay shrink significantly. The only way to claw back some of the shortfall is for Geoff to claim every expense he can, within the confines of HMRC regulations, but he still ends up taking home less money than before.

Problem solved

The solution? Geoff needs to contract through Darwin. By becoming an employee of Darwin Geoff will take home more money than he would have done with any umbrella or limited company, without any administrative hassle. All he needs to do is send his timesheet to us each month and we’ll do the rest, making sure he takes home up to 88% of his gross contract value.

Call Darwin today to find out how you could benefit.