Umbrella company workers earning more than £100,000 a year can legitimately reduce the amount of income tax they have to pay, according to an expert.
Writing on Contractor UK, Tony Harris, managing director of independent financial advisor ContractorMoney, pointed out that freelancers earning over this salary will effectively face an income tax rate of 60 per cent from April 6th due to personal allowance changes.
However, he claimed that contractors who are able to access an umbrella company‘s group pension plan can use a salary sacrifice scheme to safeguard some of their earnings from the taxman.
“Salary sacrifice works because the umbrella contributes directly to the scheme on your behalf, taking out contributions from your gross earnings, so enabling you to reduce your income under the all-important £100,000 limit,” Mr Harris explained.
The expert also pointed out that because umbrella companyworkers can make savings on both employer’s and employee’s national insurance, they can benefit from a tax relief rate of 68 per cent.
Martin Hesketh, managing director of accountancy firm Brookson, recently told Contractor UK that people should keep thorough financial records to make completing their tax returns as simple a process as possible.
