Using an Umbrella Company: Umbrella Calculators and the IR35
There are a massive range of benefits to attaching yourself to an umbrella company
An umbrella calculator is an online piece of software, usually used by umbrella companies for “hire”, designed to permit the user to input his or her own financial figures and a number of other variables , such as their hourly rate, amount of billable hours they usually work and regular expenses , for example overnight hotel bills 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 use these variables to find out whether a person will be financially better off working for an umbrella company or for themselves . The Umbrella calculator looks at all of the variables against the tax system and works out a potential saving should the person decide upon the umbrella company route .
In addition to taking advantage of an umbrella calculator, you would be well advised to ensure you understand and are wholly compliant with IR35. IR35 is the name given to a piece of UK legislation set up to ensure that people taken on by an umbrella company do not benefit unfairly from their change in situation. IR35 was introduced in 1999, before which time those who were employed by an umbrella company could legally take their income as dividends , 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 each of them might benefit from spreading the company’s profits 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 .