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Less scrupulous users of the umbrella company system might also use it to maximise their self employed tax relief by “hiring” a spouse or relative as a company director or Finance Director. This third party is then remunerated by the umbrella company, rather than paying self employed tax. The amount salaried to this other “employee” is in reality a part of the income paid to the contractor by the contracting company, but by sharing this money among two directors of the umbrella company you can benefit from the tax-free allowance or “personal allowance” which all British people of working age receive, with the first portion of their income (today it’s the first £7,475, rising in 2012/13 to £8,105, with an additional increase included in in the March 2012 budget) going untaxed.
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