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Accounting for contractors in Chester

Any independent contractor in the Chester area will need advice on handling their financial affairs. Those who conduct their enterprise as a sole trader and submit their own tax returns may find that they need more time to develop their enterprise and seek new business. There are several options as regards accounting needs for contractors in Chester, one of which is the PAYE umbrella.

What is the PAYE umbrella?

The PAYE umbrella company is a situation in which the freelancer or contractor is employed by the umbrella company. The mechanics involve the contractor submitting timesheets to the umbrella company, which then invoices the client (or sometimes an agency) in respect of work carried out by by the contractor. This means the contractor will be paid as a PAYE employee minus the fee for the umbrella company facility.

What are its advantages and disadvantages?

The PAYE umbrella is simple, as the contractor merely has to send in their timesheets and expenses information and await payment. The payment received is net of all NI contributions and tax, so there will be no more tax liability. The umbrella format is useful for short term contracts if, for example,  the contractor is a locum lawyer or is between permanent jobs and testing the water as a contractor.

The downside is that it is not the most tax-efficient way of working and can be the most expensive manner of working for contractors. Additionally, the contractor is totally reliant on another party – the umbrella company – to ensure that they are paid once it collects the money from the client or agent. It is, however, certainly a straightforward form of accounting. For contractors in Chester – a great city for business due to its proximity to Liverpool, Manchester and North Wales – using the umbrella format may be suitable for some but it is important to take initial advice.

Choosing an umbrella company

By using the umbrella set-up, contractors will be permitted to claim some basic core expenses. This is legitimate but a degree of scepticism is required when viewing umbrella companies who have eye-catching advertisements. Typically, these companies state that additional expenses can be claimed without having to produce receipts through special dispensations which have been agreed with the Inland Revenue. Appealing as this may be, the Inland Revenue has clarified that it will investigate and challenge any umbrella company which is seen as actively encouraging people to avoid paying tax through submitting false expense claims.

Therefore, choosing an umbrella company wisely is very important if a contractor is to operate within the law. Freelance contractors will find that an established accountancy firm with local knowledge, such as Wainwrights Ltd, can help with accounting for contractors in Chester, Wirral and Liverpool.