Category Archives: Umbrella Company

The Future of Public Contractors in respect to IR35

As a Public Contractor, you are probably wondering what is IR35? How will it affect my business ? HMRC has introduced changes to IR35 recently called “Off payroll working in public sector”, It is a new change legislation which seeks to put tax liability on public sector employers who employ through limited companies or meet the definition of self-employment.It ensures that disguised employment is identified where a contractual worker fills a permanent position in a company yet does not pay the statutory tax and National obligations as a permanent worker normally would. As per HMRC, only business owners exposed to actual risks warrant dividends and not employees who use a limited company.

The legislation which will take effect as from April 2017 will see the IR35 status being calculated by the employer and not the contractor as has been the case in the recent past. In the event, the employer is of the opinion that the contractor is within the IR35 definition yet fails to report the same, he will be taxed as if he were the employee which will be done at source. the contractors will however not change and hence they will continue to enjoy the benefits and rights that go hand in hand with those enjoyed by salaried employees such as contributions to pension and holiday payments.

HMRC has come up with new assessments that ensure that engagements do not fall within the IR35. This self-administered test aims to determine if the contractor falls in the IR35. HMRC explain that persons who fall under the IR35 include persons who lack practice of having the work done though substitute resources while going to the office where they are instructed on how to do the work.In the event things are faulty at work, contractors will be forced to encounter the costs and replace the work without involving the client

As a public sector contractor, there are a few options that are presented to you so as to ensure that you do not fall within the definition of IR35. One of the solutions would be to join an Umbrella company.An umbrella company acts as a direct employer to agency contractors working under fixed-term engagements. Ganumbra is an example of a leading umbrella company in the UK.Being an IR35 free company, Ganumbra this is the future of public sector contractors and as a contractor, you should strongly consider being part of this company. Ganumbra provides its’ clients with fully IR35 free solution. They further note that companies will not fall outside the IR35 by following some of the presented ideas such as having an office at your clients’ place of work, having flexible hours, including replacement clause in your contracts among others. Ganumbra, however, provides solutions that ensure a hassle-free management of contractors affairs in a centralized manner.Among the services provided are; same day registration and set up, instant payroll batch, comprehensive employee benefits and uniquely tailored solutions as per your needs.It is also 100% HRMRC compliant. HMRC is intent on ensuring the implementation of this new law and the umbrella company is designed to meet this new change.

Public sector contractors will no longer have to take up the responsibility of determining their own IR35 status and go ahead to pay come April 2017. Additional taxes will be incurred by the employer if the contractor falls well within IR35. Contractors The client will be responsible for declaring if the contractor falls within or outside IR35. Organizations will now have to assess their contractors so as ensure they pay taxes accordingly to avoid the possible burden of the additional taxes and contributions.A period of 31 days will be given to organizations to respond to the requests from contractors working directly for the entity before they are declared liable to pay the tax.

Just like any other new legislation, IR35 will have its own outcomes and challenges in the implementation of the same.Public sector employers are already hinting a mass exit from hiring contractors through limited companies.This is as a result of the additional tax responsibility that comes with IR35 if the contractors are found to be within it.The legislation will not only affect contractors but the public sector in general and in turn the UK economic state. Fewer contractors will also avoid or completely disengage themselves from being in business with limited companies.The shift towards management consultancies is also expected. It is likely that due to the stretched human resource at HMRC, the implementation of the IR35 will cost the essential resources so as to determine the reality on the ground.This changes will also affect the agencies currently providing contractors and public authorities who also hire from off-payroll contractors.There is also a possibility of some contractors opting to scale their operations and moving to markets currently not affected by IR35.

Public sector contractors, however, can view the IR35 in a whole new perspective to mitigate the obvious negative impacts brought about by this new legislation.The best prompt action would be to join an umbrella company which is PAYE compliant.The umbrella company would act as a direct employer to contractors so as to ensure that they fall well within IR35. The legislation clearly states that the off-payroll rules do not apply in the event that the umbrella company employs contractors directly and not through intermediaries.However, for companies who do not employ directly the IR35 rules will still apply. Umbrella companies save contractors the tasking duty of filing for their own taxes, starting a limited company only to close it again in the event the contractor wishes to be at work for a limited time period.It also gives the contractor the option of outsourcing management hence one is able to prioritize their work.If as a public sector contractor you are sure that you fall inside IR35 an umbrella company would be a good solution.

This then leads to the question, which is the best umbrella company for you as a public sector contractor? http://ganumbra.com/blog/?p=129 provides you a brief insight into the best umbrella companies in the UK that you should consider to cushion yourself from the inevitable impact once the IR35 is implemented.Your journey has been made easier in preparing yourself for the future as a Public sector contractor.

By now you may be wondering , how would I save tax by joining a compliant umbrella company ? what would I do with the money saved up Limited company ? Please wait for our next blog article on this. There are several HMRC approved investments which can almost reduce your tax burden to nil legally and give you attractive returns. Would be happy to know your views on the article.

A Brief History of Umbrella Companies

Ganumbra

Money is one of the most powerful motivators of human beings. It has caused conflicts, separated homes, driven average people to phenomenal action and even pushed phenomenal people into desperate decisions.

This was the state of contracting at one point in the UK. Across the board, contracting companies were exploiting legal loopholes to reduce their tax payments and drive their profit margins up. Unwittingly, as companies drove their own liability down, they pushed that of their employees up and it became a matter of chance and time until they were caught by the system.

Personal Service Companies

Personal Services Companies or Ltd. Companies had been the most attractive option all along. Signing up for a Ltd. Company makes the owning contractor a company director. This gives him full control of the use of company revenue and also allows for a number of tax claims that are fully legal. Ltd companies typically show the income earned through contract as business income take advantage of the NI free dividend payments that was typically enjoyed only by the businesses owners.

In fact, personal Service Companies are more tax efficient than umbrella companies, however far more legal documentation is required. This wide spread, continued disguising of employment income, eventually resulted in the IR 35 which forced the creation of umbrella companies.

Institution of the IR35

The IR35 is a tax legislation that was implemented in 1999 to allow the government to properly tax “disguised employees”. The term “disguised employees” refers to contractors who would use an intermediary company, to “receive” payment from their clients, without a direct transfer of money.

Since contractors were using the companies they owned to pay themselves, their income would not be subject to taxes. This is because the profit that the company produced- not the revenue was what was liable to taxation at the time.

Eventually the HMRC (Her Majesty’s Revenue and Customs) and treasuries realized they were being cheated and thus, the IR35 was born.

Umbrella Company

Once the IR35 legislation was put in place, it became difficult for contractors to claim the tax benefits that a normal small business would. The government would issue “tests” to determine whether contractors qualified or not.

As a result, umbrella companies were born. These companies would work through recruitment agencies to hire contractors on their behalf. This arrangement allowed contractors to use the umbrella companies as their “home” offices and thus claim travel expenses, overnight expenses etc. from the office to the location of their clients, provided you are not under direct supervision, direction and control of your end client.

Managed Service Companies

This type of company is a yet another that was brought about by the IR35. It places 5 to 8 individual contractors as shareholders in a Ltd. Company. The typical approach, is for these contractors to receive the lowest salary possible, while receiving the remaining payments as dividends.

This arrangement was rather popular until new legislation was implemented in 2008 that directly challenged the use of Managed Service Companies to avoid taxation.

The Current State of Affairs

At present, PAYE umbrella companies remain the best way to go about contracting in the UK. Limited companies take second place since they allow for certain tax exemptions. With the introduction of the new law putting the onus of “IR35” employment status determination on public sector employers, ltd companies are going to play lesser role in the contracting market going forward. But some companies may be operating one of the schemes in disguise.

What do you think? Are you a contractor in the UK at the moment? Leave your Comments and Advice Below so that newer contractors will benefit.

Nine popular myths about Umbrella Companies

Exposing the facts!

It is highly suggested that you should know these nine popular myths of umbrella services. Question yourself, are you really in safe hands? Are you sure that the money comes into your account is 100% legal and you are not blacked out in any way. Always make sure that you keep an eye on latest HMRC updates so that you know exactly how it actually works and what is being done.

Facts umbrella company myths

Myth #1 – I can keep 90% of my pay by choosing a right umbrella company

Fact: No!

A compliant umbrella service provider is aligned with UK employment tax laws and are applied to all workers. As per the law, all contractors are subjected to national minimum wage policy. Compliant umbrella companies employ contractors and operate Pay As You Earn (PAYE) income tax and National insurance contributions. Hence it is not reasonable to believe that any compliant umbrella company would be promising their contractors for 80% – 90% take home.

If two umbrella companies are 100% HMRC compliant, only two things should make a difference to your net pay between them;

  1. Umbrella company fees
  2. How much expenses a contractor claims. 

How come some umbrella companies advertise with 80 – 90% take home?

This is an old trick played by some umbrella companies, to promise you a magical sky scraping take home pay, starting from 80 – 90 percent.Certain allowances or a loan will be paid by your own bit of earnings. Umbrella company writes it off as not recoverable on their books. Mind that, any unused allowance  or unrecoverable loan becomes your personal tax liability to pay. When HMRC comes back for investigation you may have to pay hefty penalty. Though it looks like higher net pay, it’s essentially same as increasing your tax liability. 

Portrait of a young businessman holding a pencil and thinking.

Myth #2 – I won’t get the full benefits as “traditional” employees

Fact: No… 

Most of the umbrella companies offer you holiday pay, sick pay and statutory payments and promote that as Employment benefits. But in reality all these payments comes from your own earnings to umbrella company. The fact is, for the days you are off or sick, you will not get paid anyway from the agency and the Umbrella company being the intermediary company will not pay for holidays from it’s pocket.

Then, from where do you think your holiday pay money comes from? The answer is simple… these payments will come from your earnings to the company !

Myth #3 – I don’t need to keep expenses receipts with an umbrella company

Fact: Depends…

Contractors are highly recommended to preserve their receipts to be safer side. No umbrella company is allowed to pay your claimed expenses without a receipt. In some cases if you can’t get the receipts, umbrella companies have an alternate method to back your claimed expenses and under the guidelines of HMRC new expense policy as per April 2016.

HMRC is placing greater emphasis on tackling tax avoidance and could therefore conduct an audit at any time. Compliant umbrella companies will also carry out random checks to ensure the rules are being adhered to.

Myth #4 – I’ll be subject to IR35 investigations as an umbrella contractor

Fact: No !

As long as you are not getting paid dividends from your umbrella company you don’t fall under IR35. After the introduction of MSC Legislation, most of the umbrella companies do not pay dividends. If your umbrella company is still paying you dividends, beware that’s illegal.

Read more: What is IR35?

Myth  # 5: My Umbrella company pay Employer’s NI

Fact: No!

It will be paid from your own earnings. As you read in the Myth #2, no umbrella company will pay for any of your costs like Employer’s NI from their pocket. Even if they promote that they pay, umbrella company being an intermediary, it is clear that it’s been paid from your earning which is given to Umbrella company from your Agency.

An umbrella company is an employer and, as with any other UK employer, they have a legal obligation to pay Employer’s National Insurance contributions to HMRC.

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UMBRELLA OR LIMITED COMPANY… Which one suits you better?

Which one among Umbrella and Limited suits you better?

Its awesome that you are in the path of your new career. You might be unclear about the options to choose right now which could benefit you the most. This article would help you make you a better decision in terms of whether to choose an Umbrella services or a Limited company services. Let me take you through the basics of the options you have right now.

LTD-vs-Umbrella
Umbrella Company

As you might already know, Umbrella services helps you with end to end employment services. To get umbrella services, means you will be the full time employee of an umbrella company like Ganumbra, where you will be bound by the employment contract and everything which comes with it. Your timesheets, expense claims, invoices, salaries and taxes will be taken care by your umbrella company. You will be working for your client as a freelancer, contract job or a full time basis. But all your documents will be taken care by umbrella company on behalf of your work-employer. Umbrella company and your Work-employer will also have a mutual agreement and a contract which contains your type of work, pay scale and everything related to your work specifications. Your salary will be paid by your work-employer to your umbrella company. Umbrella company will pay you your salary after deducting the taxes leaving you free of hassles so that you can only concentrate on your work and perform better. You can read our detailed article on Umbrella company here.

Limited Company

Setting up a Limited company gives you much more freedom to be your own boss and be able to run your business more tax-efficiently. Umbrella companies are preferred for the beginners to get some basic exposure of contracting. But it is always good to go one step ahead after getting enough knowledge so that you can start planning your career and gain most of the employment benefits.

After all, if there is a smart way to save up most of your taxes, why would you wanna give it up?

Why should you go limited?

You could make a lot more money – We found that contractors who switched to limited took home 18% more every month on average.

You’ll be more tax efficientAs a limited company contractor you pay yourself a basic salary and the rest is paid in dividends, which are not subject to National Insurance contributions.

You can grow your venture – Limited companies can obtain a separate credit rating on which to borrow capital, and contractors who choose this setup can secure assignments with clients that require business-to-business contracts. For those with entrepreneurial ambitions, you also have the option to grow your venture into a small business by hiring a team of employees.


Firstly, let us break down the basics of a limited company.

Let’s consider you have your own business. It could be a start-up, entrepreneur, small – medium to large business. You will have a lot to deal with unlike an umbrella employee. Along with your work, you will also have director’s responsibilities to develop your business, managing your company accounts and taxes.

When you start your own limited company, you should be ready to take up additional responsibilities, which means that you will have less time to spend with your family and loved ones.

7 Important steps to decide:

how to decide

The above steps can help you in some way to decide what is your current situation and how can you make a decision which one suits you better. If you think you can spend some time in your weekly hours, then calculate the UK taxes using the below link- where for your earning you will know how much you can save if you sign up for Limited company services.

Access the tax calculator here

Now, you know the difference. Think about the quality of life you will have if you are saving the above amount. Do you think it is worth for you and it will benefit you? If Yes! then Ganumbra is there to take you through the Limited company process; visit our website www.ganumbra.com

If you think the amount difference you are getting is relatively small and you wont benefit much out of it, then, we suggest you to go for Umbrella company services. Know more about Umbrella company services.

Limited company doubts

You can take help of a professional accountant or limited company services offered from most umbrella companies. It will ease your burden a bit but the most of responsibilities still lie with  you. You will have to carefully weigh your options before deciding.

Ganumbra is a highly experienced and most trusted umbrella company that provides you with friendly and genuine guidance on your career. Ganumbra is always there for you no matter what path you choose. We will guide you at your each step. Visit www.ganumbra.com to speak to one of our experts.

We are in this together!

Happy Contracting 🙂

UMBRELLA COMPANY… a true career friend every contractor needs

When you start your career, it is very important for you to know about your taxes, expenses, what goes after it and how you need to sort it overall. For instance, if you are a freelancer or working for a someone, you must know how are you going to plan your time sheets, invoices, salaries and expenses along with submitting end to end tax related documents to HMRC.

You should also know about the structure of your taxes because handling salary and tax is the most important aspect of career irrespective of work type.  

Contractor expenses

That’s where an Umbrella company comes in. An Umbrella company is also known as PAYE (Pay As You Go) Umbrella company. Umbrella companies are the lifesavers of Freelancers.  You will already have much work to focus on and to have a complete knowledge of tax and expenses on top of it could be a big task to handle all by yourself. You should have dedicated HMRC experts to do such tasks for you and ease your way. While you focus on your career goals, umbrella companies can be your guardian and handle your time sheets, invoices, taxes, expense claims and mediator to your agency/client company.

How does an Umbrella company work?

Umbrella company structure

Umbrella company mediates between you and your client company. You work for your client company and submit the time sheets to them and send a copy to umbrella company for reference. Umbrella company then raises invoice to your client company based on the number of hours worked and the rate per hour agreed. Raised invoice is paid to the umbrella company by the client company. Then, the umbrella company plays a major role in sorting the tax part of your salary. Your salary is paid by the umbrella company after deducting your taxes according to the guidelines of HMRC. If the umbrella company is charging you for their umbrella services, that cost will be deducted at the time of your payment before tax.

Joining an Umbrella company is always the smartest choice.

Advantages of joining an Umbrella Company.

As an employee, once you start your new career it’s always be daunting at the choices you will have to make as a new learner. It will be a challenging journey at first. As a contractor, you will be given a contract of employment making you as employee of an umbrella company. Your salary will be paid by your umbrella company.

Umbrella company advantages

You will have the advantage of working at your flexible times yet enjoy all the benefits of a full employee.  You will be freed from the hassles of tax and claims. While you relax and concentrate on your works, your umbrella company will be dealing with HMRC, making sure all your tax related employee documents are in one place.

We are in this together!

Ganumbra is a highly experienced and most trusted umbrella company that provides you with friendly and genuine guidance on your career. At Ganumbra, we focus on taking you through your employment journey from the day one of your career, helping you in your every step. Ganumbra provides a free umbrella company services for first year. Ganumbra offers added employee benefits like clinical counselling, critical incident support, customised EAP website, legal support counselling and many more for added peace of mind.

More details can be found at http://www.ganumbra.com/

Happy Contracting 🙂