Umbrella Companies for Telecoms Contractors
Since the inception of IR35 in 1999, there has been much greater use of umbrella companies for telecoms contractors.
If a contractor is outside IR35, generally they operate through limited companies, or personal service companies.
If a contractor is inside IR35 they usually use an umbrella company rather than pay the IR35 tax.
This is less profitable since Chancellor Osborne took away their right to claim travel and subsistence allowance against tax.
However, it is still a bit better than simply paying the IR35 tax.
Main IR35 Factors
There are three main IR35 factors and nine more minor ones which go towards determining a contractor’s IR35 status. You can find those at IR35 Factors.
So how do you find out if you are inside IR35 or outside it?
HMRC have created an IR35 Employment Status test which will give you a good idea. Click on it to take the test.
You should be aware, thought, that this test has no legal basis. It is just HMRC’s view of who is inside IR35 and who is outside.
It has to be stated, though, that they may be a little biased.
However, if you do pass the test, you can safely say that you are outside IR35.
You would be better to use a limited company then.
Inside IR35
If you fail the test, it would be fair to say that you are either inside IR35 or marginal.
If you are marginal, you may want to change your contract and working practices before you take the test again.
You should read 18 Ways to Stay Outside IR35.
Contractors Use Umbrella Companies
Most contractors who are inside IR35 use an umbrella company.
However, many contractors who are marginal use an umbrella company too – to be on the safe side.
They don’t want the threat of an IR35 investigation a few years down the line. If that happens they may end up owing HMRC tens of thousands of pounds in back taxes, interest and penalties.
Although they pay more tax, they sleep better in their beds at night knowing there is no IR35 threat hanging over them.
For further information on umbrella companies for telecoms contractors see below.
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