There are a massive range of benefits to attaching yourself to an umbrella company to administer and mediate your work when you sub contract with an employer, for example, reducing your tax bill in an entirely legal and candid manner . If you work on a self-employed basis but contracted to one major business, you may need to consider going down the umbrella company route . In order to establish once and for all whether this decision is the best option for you , you will first want to be certain of two things: will you be net better off if you attach yourself to an umbrella company, and can you do this without thoroughly upsetting and incurring the wrath of the Her Majesty’s Revenue and Customs? To find the resolution of these two pretty vital questions you should find yourself an umbrella calculator and make sure that you have a thorough understanding of IR35.

An umbrella calculator is an online piece of software, usually found on the websites of umbrella companies for “hire”, that allows the user to input his or her own financial circumstances and a number of other variables , such as their hourly rate, amount of billable hours they usually work and regular expenses , for example overnight accommodation 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 take these various inputted data and use them to find out whether a person will be financially better off working for an umbrella company or under contract as a self employed person. The Umbrella calculatorchecks all of the variables against the tax system and works out a potential saving should the applicant decide upon the umbrella company option.

In addition to taking advantage of an umbrella calculator, you should ensure you understand and are totally compliant with IR35. IR35 is the name given to a piece of UK legislation set up to ensure that people set up to be hired by an umbrella company do not benefit unfairly from their change in situation. IR35 was issued in 1999, before which time those who were employed by an umbrella company could legally take their income as company profits, which were officially not liable for National Insurance payments. IR35 also worked to prevent an umbrella company from being owned by different members of the same family, such that all of the owners could benefit from spreading the company’s income across each owner’s lower taxation echelons and personal allowances, which minimised their tax obligation to the point of avoidance. Although it has been subject to regular consideration and review by various governments, IR35 remains largely intact and also remains largely unchanged since its creation .