Making sure that you meet your tax liabilities is something that you need to seriously consider and plan for before you start working as a freelancer or contractor. Failure to have a proper system in place could see you being hit with a big, unexpected, tax bill, and possibly even a fine too. As well as paying the right amount of taxes, you need to make sure that the system that you opt for does not make it difficult for your clients to pay you. One option available to you is to set-up a limited company. You will be the director and only shareholder, so it is not as complicated as it may sound. Taking this approach minimizes the amount of taxes that you have to pay, and allows you to claim back the widest possible range of expenses. If you have the time and money available to do this, then it is certainly something to consider doing. Setting up a limited company is expensive and time consuming though. You will have to hire a lawyer and accountant to start with, and there are various on-going fees to pay, and paperwork to deal with. The easier option is to let a tax umbrella company take care of all the technicalities for you, and then you can focus on what you do best - making money. If you use the services of a tax umbrella company, you enter into a contract with them and effectively become a PAYE employee again. However, you get the benefits of being an employee, without the hassles. Of course, the umbrella company cannot tell you what to do, but for you they will look after your invoicing, payments and tax contributions. The tax umbrella company will pay you weekly, fortnightly or monthly (whichever you agree on when signing a contract with them), and the funds will show up in your chosen bank account, minus your tax contributions and the umbrella company’s fees. The umbrella company should only take a set fee (again agreed on before you sign a contract), and not a percentage of your earnings.
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