37% of Contractors Penalised by HMRC

Posted on in Umbrella Company.

A recent study found this interesting statistic and a few others after a survey of 2,000 various contractors:

  • 42% of contractors are confused by HMRC guidelines
  • 54% weren’t sure which expenses could and could not be claimed
  • 64% of those surveyed identified the process of filling in paperwork for HRMC as their greatest concern

From this information, it’s quite clear the average contractor is confused when dealing with any aspects of HMRC and tax law. 

Since that’s the case, what’s the solution to the problem?

Trusted, Reliable Umbrella Companies Help Contractors Manage Their Taxes and Expenses

However, contractors shouldn’t be quick to sign on with an umbrella company.  Growth has quickly accelerated in the industry over the past decade or so, and unfortunately, many umbrella companies are more interested in turning a profit than they are in helping contractors, even if that means not helping contractors claim the correct expenses. 

Therefore, those choosing to work in their profession as contractors should choose their umbrella company carefully by keeping these tips in mind as they do so:

  1. Only consider companies with at least five years of experience:  many newer companies exist, but many have also been around for several years, perhaps even a decade or more.  The older, more established companies are more likely to have founded their business on providing a worthwhile service.  Some of the newer companies are present just to take advantage of the growing demand. 
  2. Avoid companies that charge based on earnings: An umbrella company does not have to work any harder for a contractor making £300 per day than it does for a contractor making £50 per day.  The average fee is between £15 and £25 per week.  Contractors quoted a percentage of their earnings as the umbrella company’s fee should not use the services of such a company.
  3. The only variance in fees should be the umbrella company’s fees:  Some companies claim they can help contractors save money on taxes by claiming more expenses than other companies will.  The reality is that umbrella companies are all subject to the same legislation, which dictates what can and cannot be claimed as an expense.  Companies claiming they can help contractors save more money than others are engaging in hype marketing at best and illegal business practices at worst. 

Umbrella companies manage all payroll functions an employer typically handles.  Contractors who prefer to focus on their profession and leaving the tax and accounting-related duties to a professional are best served by finding a reputable umbrella company to work with.  

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