Basic Accounting

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Managed Service companies are service companies that provide contractors with a company to manage details like invoicing and accounting, this is due to contractors working on all manner of jobs for any amount of time. This is an efficient and preferable way for a contractor to be able to spend less time on unnecessary paperwork and more time doing the work they’re contracted to carry out.

The most common type of Managed Service Company used to be the Composite Company. Each contractor in the company was considered as a non-director shareholder and the company comprised roughly of 20 contractors being managed by the scheme provider. As well as the organisation of work there were more benefits to this organisation, mainly the financial aspect.

Contractors would be paid a lower wage plus dividends and would be able to claim expenses towards the company, this was favourable as it could help avoid large National Insurance and Income Tax that would apply if the contractor was paid by salary alone. It was not as simple as this though, as the companies had to avoid a piece of legislation called IR35. IR35 is a piece of legislation that came into effect in 2000, brought about due to the Inland Revenue believing that a number of contract workers such as IT professionals, Engineers and directors were declaring themselves as self employed when they should have been declared as employees of their clients.

In what has become a game of cat and mouse contractors using an umbrella company have been trying to avoid the IR35 legislation and Managed Service Company rules that have plagued them in recent years. As a result there are many companies that offer “IR35 solutions” where contractors can join an umbrella company that takes care of all the paperwork allowing the contractors to do what they do best…get the job done!

Companies that provide the IR35 solution have been able to save up to 25,000 per annum for their contractors, something many workers find attractive and has given this business a huge push in recent years. In many cases if you are a contract worker or operate your own company, umbrella companies can help ensure your business succeeds where others have struggled to get paid fairly. When you think that many start-up businesses and independent workers struggle when it comes to payment and accounting it would be preferable for them to enrol with an umbrella company rather than be stuck with accounting woes such as debt and business loans.

In order to avoid any possible debts, if you are a contractor or self employed then you should look into umbrella company and IR35 solutions as a way to maximise your earnings.

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We all need a little help when it comes to sorting out our debt.