Working under an Umbrella company has been a saviour for thousands of self-employed workers. It frees them from the unnecessary hassle of administrative burden that owning a Limited company can bring along. Contractors working under an umbrella are considered employees of that company.
While working under an umbrella company has many perks, there is a general query that usually comes up: ‘Do Umbrella Employees need to file Self-assessment?’
But before we answer this, here’s an overview on ‘What is Self-Assessment Tax Return?’
What is a Self-Assessment Tax Return?
Self-assessment is a taxation system that the HM Revenue and Customs (HMRC) sees over to collect Income Tax efficiently. The tax year starts from 6th April of the preceding year to the 5th April of the ongoing year. Individuals as well as businesses need to comply with the HMRC rules, and report it in a tax return every year.
Do Umbrella Employees need to file Self-assessment?
Typically, contractors working under an umbrella agency don’t need to file a self-assessment since they are employed under the Umbrella. However, contractors undertaking additional work need to file for a self-assessment tax return.
Undertaking any kind of work that offers additional source of income is classed as being self-employed in which case you will be required to file for self-assessment. Here’s when you are deemed to be self-employed:
- are a company director and have income that is not taxed under PAYE.
- are a sole-trader (self-employed).
- have untaxed income. This could be, for example, interest or rental income that is not taxed before it is paid to you.
- receive regular annual income from a trust or settlement, or you receive income from the estate of a deceased person, and further tax is due.
- have taxable foreign income whether or not you are resident in the UK. This includes non-UK resident landlords.
- have income from savings and investments of £10,000 or more before tax.
- have an annual income of £100,000 or more before tax.
- or your partner receives child benefit, and your income is over £50,000 (high-income child benefit charge).
- have tax due at the end of the year that cannot be collected via your PAYE coding notice in a later year.
- receive untaxed income of £2,500 or more.
- claim for expenses is £2,500 or more.
- have capital gains where you:
- have given away or sold assets worth £48,000 or more for 2019/20; or
- have a capital loss, but your gains net of any losses are more than the annual exemption for 2019/20 of £12,000; or
- have no losses to claim, but your gains are more than the annual exemption for 2019/20 of £12,000; or
- need to make any other capital gains tax claim or election for the year.