Two Frequent Ways of Cutting the Tax Charges of U.K. Contractors

Anyone with much experience working as an independent contractor in the United Kingdom knows that the tax consequences can be painful. By default, independent contractors are forced to shoulder the tax burdens normally borne by both employees and employers, resulting in some pretty heft tax bills in many cases. Just about anyone who pursues this style of work for very long, then, seeks out ways of lowering their tax liability. Fortunately, there are some good ways of doing so.

Probably best known are the kinds of best umbrella company law that are generally allowed to contractors. The simpler of these is that of the PAYE style, an extremely basic way of escaping the dual taxation burden that normally falls upon contractors. Setting up PAYE umbrella companies in uk cities is easy to do, as is keeping up with the necessary paperwork. In fact, little more is required than entering financial details into widely available spreadsheets, something that most contractors would already be doing.

Unfortunately, there are also some real downsides associated with PAYE umbrella companies. The most important of these is that, while it can provide a bit of relief, the PAYE system still leaves most contractors facing tax obligations of 35-40%. While they are appealing with regard to their simplicity and ease of maintenance, then, umbrella companies of this kind are much less so in terms of the primary reason that most seek them out in the first place.

For contractors who are looking to shave their tax bills further, limited companies often make much more sense. Working under a limited company arrangement gives a contractor access to the flat-rate VAT system, along with much greater flexibility in terms of tax and income planning. Those who choose this option also typically cut their tax bills by quite a bit more than those who opt for a PAYE umbrella, as well.

The downside, in this case, is that administering a limited company takes more work than keeping up with the PAYE umbrella company uk contractors otherwise normally default to. A fair amount of monthly bookkeeping has to be dealt with, or the company can be judged in breach of its basic legal obligations.

In reality, though, there are good, cost-effective ways of getting around these problems. Companies like UK Contract Partners, for example, offer affordable maintenance services that can completely remove these responsibilities from the hands of the contractor. Especially given the tax savings to be had, this can therefore be a much more attractive option than the alternative.