Umbrella Company v Limited Company battle rages

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Limited Company Battle
Limited Company Battle versus umbrella companies

Limited Company Battle

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Umbrella Company v Limited Company battle.

Although the Government didn‘t intend it to be this way, the Agency Workers Regulations has tilted the raging battle back towards Limited Companies from Umbrella Companies.

We saw how, in a previous article, that Agencies were nudging contractors towards Limited Companies because of AWR. That’s even though it is illegal to do so. HMRC could ask agencies to stump up the difference between what a contractor would pay in taxes and NI contributions as an Umbrella Company contractor and what he would pay as a Limited Company contractor.

limited partnerships for contractors
limited partnerships for UK contractors

This difference is reckoned to be about £10,000 a year per contractor.

That‘s potentially a massive bill for agencies if HMRC catch them at it.

Mainstream Umbrella Companies

It is thought that mainstream Umbrella Companies are holding their ground at best. Many are losing contractors who are going the Limited Company route.

Previously it was not only those who were likely to be inside IR35 that went the umbrella route. They also attracted those who didn‘t want the hassle of running a Limited Company.

There are also those whom agencies would just shove into Limited Companies. Presumably that was because it was good for the agencies.

Converting to Limited Companies

Now, many of those contractors who are potentially outside IR35 are looking at the possibility of converting to a Limited Company.

Although not an absolute match, if you are inside IR35, AWR is likely to hit you as well – and vice versa.

Leaving Umbrella Companies
Leaving Umbrella Companies or staying – the choice for contractors

So, while some Limited Company contractors who were probably not inside IR35 went into Umbrella Companies, anyway, they don‘t necessarily want to be inside AWR as well.

The reason is that clients are less likely to want contractors who are inside of AWR whom they might have to give many of the permie perks like sick pay and holidays.

The contractors don‘t want to be less employable.

Sending Contractors to Umbrella Companies

Previously agencies considered it in their best interests to send contractors the Umbrella Company route. They often have relationships with particular Umbrella Companies. They tell contractors that they must go this route.

Now some agencies have swapped sides.

umbrella companies future
The future for umbrella companies

The reason they are doing this is that clients are less likely to take Umbrella Company contractors now.

Refusal to Put Forward Umbrella Company Contractors

One agency is even refusing to put forward Umbrella Company contractors.

This is a massive risk for them. If HMRC finds that they are trying to suggest to contractors that they should go the Limited Company route, HMRC could charge them for the difference in the tax take for that contractor as stated above.

However, they seem to think it is worth the risk. That’s even though one agency is being investigated by HMRC at the moment for a massive sum of money.

The Umbrella Company v Limited Company battle rages on.

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