Tax can be a very complicated business and if you have ever attempted to complete HM Revenue & Customs documents yourself, you will be aware that if you don’t know what you are doing, you could land yourself with some serious issues.
If you aren’t great with numbers or have a complex tax situation, then you could look at the alternatives of either an Umbrella Company or setting up a limited company and using an accountant.
Each year in the UK, more than eight million people automatically receive a self-assessment tax return, which they are required to complete by law. So how do you know if you need to complete a tax return? If you fit within one of the categories mentioned below, then you are more than likely file a tax return:
- Self-employed (this includes being a member of a partnership)
- A company director
- A minister of religion (any faith)
- A name or member of Lloyds
- Receiving income above a certain level from savings, investments or property
- Receiving taxable income from overseas
- Receiving a total annual income of £100,000 or more
- Aged 65 and receiving a reduced age-related allowance
- Having to pay tax that cannot be collected through PAYE
If you are still unsure then visit the HMRC website for a comprehensive listing of the circumstances that will require you to declare liability for taxation. However it is worth noting that tax returns have various filing deadlines, these deadlines are very strict and if your tax return fails to meet the required standards or is not submitted / resubmitted by the appropriate deadline, then you could be in for a shock.
In April 2011, new penalties were introduced by HRMC to encourage filing of returns on time, however in 2012 around half a million people failed to do so and received fines of at least £1,200.
So, all things considered, if you are one of these people required to complete a tax return or are thinking of setting up your own business where you will need to declare your tax liability, it is worth asking yourself whether it would be beneficial to look at the option of an Umbrella Company.
A compliant umbrella company can relieve you of all of this stress and hassle as they take care of PAYE and VAT payments to HMR&C; you won’t even have to complete a self-assessment tax form for the income that you earn whilst on assignment.
Alternatively if you chose to operate via a Limited Company, you will be taking on the responsibility of registering for PAYE with HMR&C, unless you are outside IR35, which is becoming increasingly difficult. Not only will you have to make PAYE payments to HMR&C each month, you will also have to retain money in the company for corporation tax and, maybe, VAT. Late filing of any of these tax payments will give rise to fines and also interest payments on the debt.
Take your time to consider the best route for you between umbrella or limited.