The Government has promised the Professional Contractors Group that they will abolish IR35.
The PCG put out a Press Release to that effect at the start of the Election Campaign.
So how will that affect Umbrella Companies?
After all before IR35 there were no Umbrella Companies.
Will the Umbrella Company disappear after the Government abolishes IR35 and all contractors go back to all using Limited Companies?
That‘s highly unlikely.
Although we now know that the Government take very little tax directly from IR35 that is misleading.
The reason for that is that IR35 has chased a lot of contractors into Umbrella Companies.
This means that they are able to claim some expenses but not as much as they would be able to claim if they had an IR35-free Limited Company.
No Hand Backs
Do you really think that the Government are going to hand back all that tax when they don‘t need to – especially at a time when they are cutting back drastically?
What is more likely to happen is that they create something else which gives more clarity to contractors.
Also, do you really think that the Government would prefer to collect tax from, and legislate for, a million contractors or for 400 Umbrella Companies?
Sure, some of the Umbrella Companies that are more risky and live on the edge may be pushed over the edge or brought inside it.
However, it is in the Government‘s interests to deal with a few hundred Umbrella Companies than hundreds of thousands of contractors.
Look how much it has cost them to pursue individual contractors through the Special Commissioners and the courts to prove that they are caught (or not) by IR35.
Umbrella Companies suit the Government‘s purpose.
Favouring Umbrella Companies
If anything they would probably prefer to chase the contractors who are operating outside IR35 in Limited Companies into Umbrella Companies.
The Coalition Government are reviewing what they will do with IR35 and are at the consultation stage.
Don‘t expect them to go back to the status quo but expect them to replace IR35 with something else which has more clarity for contractors – but doesn‘t send them back to pre-1999 days.
Which Umbrella Company
Read our review of some of the top Umbrella Companies at Which Umbrella Company?