Umbrella Companies IR35 Contractor Bonanza
There is an Umbrella Companies IR35 Contractor bonanza in Banks, Finance, Telecoms, Engineering, Oil, Gas, IT and Graphic Design companies. That’s down to the looming implementation of the Government’s IR35 reforms in April 2020.
However, many contractors are not waiting until then. They don’t want the uncertainty of having to take HMRC’s Check Employment Status for Tax test. They are piling into umbrella companies now.
Umbrella Companies IR35 Contractor Questions
- What are the IR35 Reforms?
- Why are contractors joining umbrella companies?
- What happened when the reforms were implemented in the public sector?
- When will the Government implement the reforms in the private sector?
- What are private sector companies doing about it?
- Umbrella Companies IR35 Contractor Choice – why they choose them?
What are the IR35 Reforms
Contractors always decided their own IR35 status previously. If they got it wrong they faced massive penalties if HMRC found out. However, here was strength in numbers. Even when HMRC decided to investigate contractors the contractors usually won at the Special Commissioners tribunal. And that’s even though HMRC had the choice of hundreds of thousands of contractors to choose from for an investigation.
What Happened When the Government Implemented the Reforms in the Public Sector
So, the Government decided to do it another way. In the public sector the Government decided that contractors would no longer decide their own IR35 status. This would be decided by the organisation hiring them.
Now, here’s the nice bit. The Government and HMRC would terrify organisations by saying that, if they got it wrong, they could be responsible for paying the contractor’s back tax, interest and penalties.
When Will the Government Implement the Reforms in the Private Sector
Despite the big problems this caused in the public sector the Government decided to roll out the IR35 tax reforms to the private sector too. It will take place in April 2020. If companies get their IR35 assessment of a contractor wrong they too may have to pay the back tax, interest and penalties of a contractor. As some companies hire a lot of contractors that could come to quite a bit of money.
What Are Private Sector Companies Doing About It
So, this is a massive incentive for companies to stop taking in limited company contractors. A survey by Brookson Legal showed that 59% of companies were considering not taking on any more limited company contractors. This could prove to be a massive blow to the contracting industry.
What some companies are doing is telling their contractors that they have four options:-
- Take a permanent job with them
- Pay the IR35 tax
- Operate through a third party company
Umbrella Companies IR35 Contractor Choice – Why They Choose Them
As you could imagine, option one is not attractive to contractors and while some may leave, it is often not as easy as that to go and get another contract. So, many contractors are choosing option three over option two.
The third parties that they are joining are umbrella companies. This enables them to be able to claim a small amount of expenses against tax. It also means that they can get all their admin done for them.
Umbrella Companies IR35 Contractor Choice
They are the umbrella companies IR35 contractor choice.
Those working via umbrella companies are treated as permanent employees of the umbrella companies. So, the companies hiring the contractors are off the hook. They are basically hiring permanent employees from another company, i.e. the umbrella company.
This means that contractors can relax and not worry about the impending IR35 reforms coming in the private sector in April
Ad – Contractor Services
When the IR35 changes were implemented in the public sector, rather than just pay the IR35 tax, most contractors inside IR35 decided to take the umbrella company route.
If you are inside IR35, or caught by a blanket ban on Limited Company contractors, it would be worthwhile looking at the possibility of an umbrella company. Just fill out the form below and someone will be in touch to let you know.
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