So, it looks as if the Government want contractors to be in umbrella companies. It’s their favourite vehicle it seems.
The Professional Contractors Group make great play of the fact that so little is collected in IR35 tax each year. They say that this shows that it is a failure.
However, this disguises the fact that IR35 legislation has chased many contractors into Umbrella Companies by the IR35 legislation.
It is reckoned that the Government nets a handy £2bn a year from the difference in tax and NI that Umbrella Company contractors pay compared to what Limited Company contractors pay.
That‘s a pretty tidy sum.
That explains the reason that the committee that the Government set up to see if IR35 should be abolished decided that it shouldn‘t. They cited the main reason as being that it would chase a lot of contractors out of Umbrella Companies back into Limited Companies.
This, they said would not be a good thing at all as it would cost the government money. It would cost lots of it.
It was never likely that the Government, in times of great financial difficulty, would just throw back £2bn to contractors. They earn, on average, a couple of grand a week.
Another consideration is that they would much prefer to legislate for, and keep an eye on, 400 Umbrella Companies rather than a million Limited Company contractors.
It‘s a no brainer for them.
Indeed, as it is so lucrative for them, one would expect that they would like to see more of those Limited Company contractors going into Umbrella Companies, their favourite vehicle, rather than contractors heading the other way.
It‘s a very handy way of getting tax from people who they see as being able to afford it anyway.
They have taken a lot already from contractors.