Countries We Cover United Kingdom

Guide to Contracting in United Kingdom

How can an Umbrella Company Help with Contracting in United Kingdom?

Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.

They’re called Umbrella Companies (or, contractor management companies).

Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.

Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in UK. Even better, most are experts in UK and expat tax law, meaning they’ll also help you optimise your earnings in UK.

Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.

Can I Organise My Taxes and Work Permit Myself?

Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for UK.

If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.

Also, are you familiar with the intricacies of the tax system in UK, as well as your own country’s laws on overseas earnings? If so, good on you!

However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in UK and your home country can seem like full-time work in itself.

A Contractor’s Guide to Taxes in United Kingdom

One of the most consistently challenging aspects of contracting in UK is complying with the country’s tax system. As well as paying tax in UK, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.

The UK tax system is not designed to be easy for contractors. Successive governments have introduced clumsy and poorly applied legislation(link is external) like IR35. This has caused huge disruption within the contracting industry but raised very little revenue for the HMRC. But even within this environment the UK is somewhat unique in having a huge variety of payment structures available to contractors.   One thing all payment structures have in common is at least part of your earnings must come through a UK payroll.

Paying Income Tax in UK through Your Employer

Permanent employees will go entirely through the PAYE (pay-as-you-earn) system. Using the income tax(link is external) and national insurance(link is external) tables supplied by HMRC your employer will deduct your tax and social security contributions from your gross earnings and pay the remainder to you. They will supply a payslip stating the pay period, gross salary, tax and EE NI (employees National Insurance) deductions as well as the net salary paid to you. It may also list the pension contribution made by your employer. Because . This means that they calculate and process your taxes in UK for you and then send you a net wage. You can calculate your PAYE earnings using our payroll calculator. PAYE is the simplest way to get paid because your income tax and deductions are automatically made for you. However contractors getting paid PAYE would be going through their agency, not the employer directly. Agencies may levy a small fee for this service, but they also don’t allow any of the common, fully legal means of reducing your taxable income.

Tax for Foreign Workers in the UK

Whether you’re a contractor or a permanent employee, foreign workers have to pay tax on all of their earnings whilst in the UK. As well as paying taxes in the UK, foreign nationals may still be eligible to pay some tax in their home country, and understanding the legislation behind this can be a challenge. Where are you tax resident? Are you covered by a double taxation agreement with the  UK? It will depend on your nationality, visa type and the length of your stay in UK. Using a specialist in international tax for contractors is strongly advised.

Working Out Income Tax in UK Yourself

It can be tempting to take a DIY (do it yourself) approach to tax in UK by using your own Limited Company or going Self-Employed. For the majority it will increase their take home pay but the administrative burden is much higher. We estimate it takes 30 hours of administration per year to be self-employed, at least 72 hours a year to run your own limited company and only 3 hours to be a PAYE employee. This is factoring in sending timesheets, calculating and paying taxes, statutory reporting and filing tax returns.

Not only does it take more time and effort, but it also transfers much more responsibility onto you. As the company director you are solely liable for ensuring your taxes are correctly calculated, paid and filed. Any fines or penalties for mistakes will be payable by you – for example penalties for VAT evasion can be transfered to the company director(link is external). With good advice and a vigilant accountant these risks can be minimised, but there is still a significant obligation on the contractor to be well organised and prompt in their dealings with the HMRC.

Additionally given that income tax in the UK ranges from 20 to 45 percent, anything you can do to minimise income falling into the top tax bracket is crucial. With this potential mine field of regulations that change with every budget, a tax office that aggressively targets contractors and high tax rates : the benefits of getting good advice are massive.

Using an Umbrella Company for Income Tax in UK

This is our recommended option for most contractors in the UK because the net retention is higher (up to 82%) and the administration is marginal. We estimate most umbrella company contractors need to do about 5 hours of administration per year, compared to 72 hours with those running their own limited companies. British umbrella companies take a number of forms including   standard Financial Management Structures, EBT’s, Loan Schemes and more. They all have some common attributes – they act as your employer whilst minimising your PAYE tax obligations. You send them your timesheets and receive net funds direct into your bank account along with a payslip and breakdown.

Most umbrella companies can handle workers in any industry although they might have a separate offering for workers in Oil & Gas or blue collar occupations. This is because the insurance policies are generally more expensive than for other typical white collar contracting areas like software developers and telecommunications.

The best umbrella companies are HMRC approved, meaning they have gone to the revenue and had their structure reviewed and approved. This gives a strong element of protection against current and future tax rulings. Additionally they retain the highest quality of IR35 and Tax QC protection to deal with any enquiries that come from the inland revenue. These specialists cost thousands of pounds an hour – well beyond the reach of most contractors – but because umbrella companies have so many customers all using the same structure it becomes cost effective. It means any routine enquiries from the tax office are resolved quickly and professionally.

How We Can Help You with Tax in UK

We work with UK partners in all areas from umbrella companies to personal accountants. All are proven experts in tax for contractors. We know their solutions well and can help you find which option suits. When you want to know more we can introduce you to the suppliers we recommend. This advice is 100% free and has no obligations attached. If you have any questions about tax in the UK, please get in touch with us.

How do I calculate my taxable income in United Kingdom

If you’re working in UK under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in UK for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in UK, but contractors may not be offered this service because of their short stay with each employer.

Anybody who can’t pay their tax in UK through PAYE is left with the prospect doing everything themselves.

Do you know much about UK Tax Law? Does UK have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in UK can range, and you need to be sure you are placed in the correct tax brackets.

Tax Filing as a Contractor in United Kingdom

Tax Figures in United Kingdom

Tax Residency in United Kingdom

Can you set up your own Limited Company in United Kingdom?

A Contractor’s Guide to Work Permits in United Kingdom

Immigration is one of the primary concerns for anybody hoping to start working in UK. Permanent employees will find it easy to get their UK work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer. The British work permit is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country.

How Does an Umbrella Company Work?

Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.

When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.

While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in UK (which means avoiding fees, fines, or even worse penalties).

How Can We Help You?

There’s a huge variety of Umbrella Companies with different specialities and advantages in UK. How do you find the right one for your circumstances?

We work closely with Umbrella Companies all throughout UK and match contractors with the right company for them. If you’ve already secured a contract in UK, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).

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By clicking submit, Campbell will introduce you by email to the best matched Umbrella Partners for your contract. It's the fastest way for Umbrella Companies to provide a detailed quote, scope of service and a projection of your net earnings. There will be no charge to you for this referral service. If you have any questions or need to talk at any stage, we're here to help.

Solutions Expert