Financial management is one of the most important aspects of any business, and people who are self-employed need to be capable in this area since they have to take care of all of the details themselves. I’m still working on a lot of this myself so I thought it worth talking about!
There are a few different options for those who need assistance with the financial side of a business, but the first essential is always to get the right system into place, as problems with finances could very easily cause the business to fail.
An accountant may seem to be the obvious choice for a small business, and there are many advantages to hiring one. Accountants are qualified to deal with self-assessment tax paperwork, payments to employees or contractors, and other financial matters. However, employing an accountant does not remove the need for the owner to devote some attention to administrative tasks, and of course time must be set aside to meet with the accountant periodically.
An alternative is to use one of the umbrella companies that offer assistance to business freelancers or contractors who value their independence but are less interested in daily mundane tasks. An umbrella company takes over a number of the administrative functions, and this gives the freelancer more time to concentrate on building the business.
Using umbrella companies
An umbrella company takes on the role of ‘employer’, but the freelancer retains their independence. This results in taxes being paid on a PAYE basis rather than on a self-assessment basis. The umbrella company will also deal with payments for National Insurance. As with self-assessment, the freelancer/contractor is able to claim certain expenses, and the umbrella company assists in claiming as much as is legally available to maximise the income.
When registering with an umbrella company, the contractor is required to submit tax and national insurance details. Any client that the contractor provides a service to will need to be invoiced, and the umbrella company takes on this function. Business owners who choose to operate independently need to devote some of their time to invoicing and chasing payments, whereas an umbrella company removes the need for this.
Anyone involved with an umbrella company works through a dedicated account manager, so any issues that arise can be resolved quickly. Tax matters such as IR35 are addressed by the umbrella company’s system; hence a business operator who might be confused by (or disinterested in) such things does not need to worry about them. Umbrella companies are available to help contractors across a wide range of industries, from care work to IT. Undertaking a relationship with an umbrella
company also provides various insurance protections that will cover the contractor in their work activities.
The importance of looking after the finances
It may sound obvious, but getting the right system in place to take care of business finances is absolutely vital for anyone who is self-employed. The umbrella company system has been designed for those who want to be independent as workers, but who are not ready or inclined to set up a limited company. It offers a middle ground option, and has worked very successfully for large numbers of contractors.