Finance options for freelance construction workers

In the current challenging economic climate, freelancing and contracting are becoming ever more popular options, particularly amongst those who like the idea of retaining control over their time
and income.

The one aspect of freelancing that proves daunting to many individuals, however, is managing the financial and administrative sides of things. For someone who is not an accountant it could be a nightmare keeping track of expenditure and outstanding accounts and coordinating that with an often irregular flow of income.

This is probably the biggest single reason why umbrella companies are in such high demand. In many respects, employing the services of an umbrella company makes it much easier for a freelancer to manage his or her finances.

The good news is that with an umbrella company a freelancer has all the benefits of working independently, while at the same time retaining many of the advantages often associated with working as an employee.

Take income tax, for example. One option is to set up a so-called ‘Personal Service Company’, but this could involve a nightmare of legal and administrative hassles that has only been exacerbated by the introduction of ir35 in March 1999.

A construction freelancer working for an umbrella company does not have to worry about the financial implications of ir35, because he/she only has to pay PAYE and that is taken care of by the umbrella company every time a pay cheque is issued.

It certainly costs money to use an umbrella company, but this cost is in no way comparable to that of hiring an accountant or administrator, which is often the only alternative. All the invoicing is dealt with by the umbrella company and it also handles the collection of monies owed to the freelancer. This alone provides a high degree of financial peace of mind, because it means he or she can concentrate on the job and stop worrying about whether there will be a pay cheque at the end of each week or month.

One of the biggest financial benefits of using an umbrella company is that while the contractor is only liable for PAYE, he or she can still claim all business related expenses. This is another aspect of the administrative process that all good umbrella companies assist their contractors with. Even better, it usually results in an improvement of the freelancer construction worker’s financial situation compared to his or her peers.

Public liability claims made against a freelancer could well have disastrous financial results for the individual concerned. Public liability insurance is expensive and working for an umbrella company could save the freelancer substantial sums of money in the long run, because it will usually have a comprehensive group insurance policy to protect its clients.

Saving for old age can also quickly become a nightmare for the freelancer. This is another financial benefit of working for a solid umbrella company; the company will normally have a pension fund and contributions will be tax deductible.

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