Public Sector Umbrella Companies
We are hearing tales of a public sector umbrella companies feeding frenzy.
This has been caused by a massive Government attack on contractors who operate via personal service companies.
The Government claim that many of them are actually inside IR35.
IR35 Employment Status Test
HMRC have now devised a new IR35 Employment Status Test.
Contractors always decided their own IR35 status previously.
If they were wrong then they got hit for years of back tax, interest and penalties.
However, HMRC hardly won any cases against contractors.
Now, HMRC say that only 10% of those contractors who should be inside IR35 are actually declaring themselves inside it.
Contractors IR35 Status
The Government now say that the Government department, local authority, or Government company like the BBC or the NHS must now decide the IR35 status of a contractor.
His, or her, agency should deduct tax and national insurance from a contractor’s income.
Government departments can get contractors to sit the new IR35 Employment Status test.
Indeed, one group of contractors, who were all using PSCs were forced to take the test all together with a HR representative in presence cheerleading aginst the contractors.
They were all inside IR35, surprise, surprise.
That could have consequences for them in back taxes as they were using their Limited Companies at the same department.
No More Contractors Using Personal Service Companies
Some Government departments are becoming risk adverse and are saying that they will no longer deal with contractors using personal service companies.
The are forcing contractors into umbrella companies.
There is one female contractor who passed the IR35 test.
However, Deloitte advised the Government department to make the position inside IR35 in case of future changes as HMRC are tinkering with the test all the time.
Now, the female contractor, who is actually outside IR35, must now pay the tax or join an umbrella company.
Indeed, that’s what most contractors are deciding to do – join an umbrella.
That’s what the departments and the agencies are pushing them towards.
Indeed there is a major public sector umbrella companies rush.
Agencies don’t want to have to set up payroll systems for contractors.
Many of them get commission from the umbrella companies for putting contractors their way.
2010 Bribery Act
Coercing contractors to join a particular agency is against the 2010 Bribery Act and could result in prosecution.
Even only allowing contractors to join umbrella companies on their Preferred Suppliers List of umbrella companies can be illegal – especially if they don’t tell the contractor that they are getting commission for them.
Umbrella companies, especially those who specialize in the public sector, are seeing a public sector umbrella companies contractor bonanza at the moment.
Some Umbrella Companies No longer taking Contractors
Indeed, we are hearing that some umbrella companies are closing their doors, temporarily, to new contractors, as they cannot cope with the sudden influx of new contractors.
Other agencies are in he middle of a contractor feeding frenzy, stuffing themselves with hundreds of contractors desperately trying to avoid paying the IR35 tax.
Any new arrangements must be in place by April 7th.
As there are thousands upon thousands of contractors in the public sector most of whom will need an umbrella company now, that is causing quite a scramble.
This Umbrella Companies Public Sector boom is unprecedented.
IR35 Legislation
They have seldom seen in it so good – at least since IR35 came on the Statute Book in 1999.
It will result in many contractors who are actually outside IR35, and in business in their own right, having to operate through umbrella companies now.
This will result in them playing much more tax and national insurance.
How long before it is rolled out in the private sector too?
End
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