Umbrella Companies for Oil & Gas Contractors
Umbrella Companies for Oil & Gas contractors became popular after the Government came up with IR35 in 1999.
They enable contractors who are inside of IR35’s net to keep a bit more of their money than if they simply paid the IR35 tax.
IR35 Factors
There are three main IR35 factors when a contractor decides their IR35 status. Or more importantly if HMRC decides it.
Firstly there is Control, Direction or Supervision. If a client tells an oil & gas contractor what to do, how to do it, how long it should take, where to do it, using particular equipment, he is likely to be inside IR35.
If he decides the above, in agreement with his, or her, client then he that would put him outside IR35.
Secondly, there is the Right of Substitution. If a contractor is able to supply a substitute to continue his or her, work when he, or she, is not available this points to the contractor being outside IR35.
Mutuality of Obligation
Thirdly, there is Mutuality of Obligation. If a contractor has a contract for a set length of time and the client has to pay him whether there is work for him or not and the contractor has to do the work then there is a mutuality of obligation.
This would place him, or her, firmly inside IR35.
It would be better for the oil & gas contractor if the contract is for a task or project till it is complete rather than for a set amount of time.
It would be better, also, if the client didn’t have to pay the contractor when they had no work for him or her.
Failing the IR35 Test
If the contractor fails the above IR35 tests he, or she, would be inside IR35 tax and liable for the tax.
If he fails two of the three, HMRC would likely consider him inside IR35.
HMRC have created an online IR35 Employment Status Test which you might want to try.
Joining an Umbrella Company
So, what most contractors who fail the test do is to join an umbrella company rather than pay the full IR35 tax.
They become employees of the umbrella company. He, or she, pays a fee to the umbrella company every month.
In return the umbrella company does all his, or her admin. All the contractor needs to do is supply a time sheet and any claimable receipts.
The umbrella company does the rest. They invoice the client, they pay the contractor’s tax and national insurance after deductions and pay the contractor.
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