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Assessing The Real Need For An Umbrella Company

John Jennings discusses how as an independent contractor you will come across the need to locate an umbrella company when dealing with certain organisations.


(Monday, April 29th, 2013) United Kingdom -  John Jennings tells of how the “need for the contractor to seek out this type of entity took on additional meaning when the British government introduced new taxation legislation called IR 35. This somewhat controversial legislation is designed to introduce a series of tests, whereby the government can determine whether or not the individual concerned is self-employed or not and thus qualifies for various incentives, breaks and so on.”

Host John Jennings says: “The umbrella company, in essence, acts in a way as your employer when you are an independent contractor. It is able to process pay as you go payrolls while at the same time gathering and applying various business expenses against the tax liability. When a contract is issued the umbrella company steps in to act as the representative for the contractor. From the primary organisation’s point of view, or indeed the recruitment agency in the middle, this is a good deal as liability is effectively reduced.”

At this point John Jennings goes on to say: “From the contractor’s point of view the good thing about dealing with an umbrella company like this is that all the details necessary to ensure compliance, legality and efficiency are taken care of for both you as the contractor and the agency. You will get an employment contract that classifies you as an employee. Rather than having to worry directly about financial matters and importantly income the best umbrella companies will now take care of that by issuing invoices to the client or the recruitment agency.”

John then conveys the idea behind the model: “This ”man in the middle“ arrangement has been proven to be a success story for independent contractors for some time now. With the advent of the new government legislation covering self-employment tax this arrangement can only be seen as a further improvement. Remember that employees have considerable rights in the workplace in the UK, a situation that is a far more grey area when it comes to a straightforward contractor/contractee position.”

John Jennings tops everything off with saying that: “There is a lot to be said for the freedom of being an independent contractor, but it doesn’t mean that you should go it alone when it comes to protection and conformity. You don’t want to receive an unpleasant shock in the mail one day from the government or any other organisation or individual, associated with your headstrong need to be totally independent!”

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