Clarifications about tax relief, expenses Umbrella company facts.

[Moriarti]

Hi, I'm new to Umbrella Companies and contracting in general, but I've read almost all of the information you guys have on Umbrella companies as well as many other sites and I have a couple of question/clarifications.

I'm attempting to choose a company from my agency's approved list, and a lot of them have mentioned tax relief. They're basically giving the impression that I will only have to pay half of their weekly net margins. From what I've read that sounds like complete tripe, am I right?

The expenses that I'll be paid are not dependant on the company I go with, despite what they say, am I right? So these little calculations they do should be ignored and I should only use their net pay margins to compare between them, along with the customer services they provide e.g online login portal, fast payment procedures?

Lastly, I suspect someone may advise that I start a Ltd company instead, so here are my circumstances; I've been independently studying IT for about 8 months and have been looking for work in the IT field to implement my knowledge in a real-life setting as I learn. I never even considered being a contractor before 4 days ago. I was contacted by a recruitment agency a couple of weeks ago because they'd seen my C.V online and thought I was perfect for a position they were recruiting for. I went to the interview and killed it, the offered me the job on the same day. I've been told that I need to choose an Umbrella Company at the employer's request. So, here I am trying to choose an umbrella company.

I don't think I WILL be doing this for 24 months, either my contract will be up and I'll leave for a better position or maybe they're doing this for a trial period and will take me on after that? I've assumed all of this, had no confirmation of this, I was just told to choose an Umbrella Company. Is this normal procedure?

I do really want this job, I think it's a great opportunity for me and I think I'll come out with great experience and some awesome stuff to add to my C.V, but this Umbrella stuff is screwing with my head. I wish I knew which companies were legitimately good and which companies aren't.

[LisaContractorUmbrella]

Hi

You are right in your assumptions. An umbrella company's margin in deducted from the income that they receive from the agency/client, as a result of billing for your hours/days worked, before your salary is calculated therefore it can have no bearing on your tax.

You can claim expenses provided that the costs that you've incurred are wholly and exclusively as a result of the contract. You can claim travel and subsistence provided that you intend to work on more than a single assignment whilst in the employment of the umbrella company and that travel to a single location does not exceed 24 months. The reason for this is that T&S expenses are only allowable when you are travelling to a temporary workplace (a single assignment with an umbrella company would automatically deem the workplace permanent). What can and can't be claimed is determined by HMRC and not umbrella companies - we are subject to the same rules as any other employer. This means that your take home pay should be the same whichever umbrella company you use - the only variation should be the margin and, as you say, the level of service that you'll receive.

You do have the option to open a Limited Company but you need to understand your responsibilities as a Company Director before you take this route and an umbrella can be a good option for the first few months whilst you find your feet in the contracting world.

Good luck