Umbrella Company Boom

An Umbrella Company is predicted to be imminent. it looks as if the Government wants to herd IT Contractors into and out of Limited Companies – and the Government usually gets its way. There are 200,000 more contractors that use them compared to in 1999 when IR35 first came out. Although contractors in brollies are able to claim some extra expenses by being in one compared to paying IR35 tax, HMRC and the Government are comfortable with that. It makes their job easier. HMRC collect a good deal more tax and NICs from Umbrella Company contractors than they would from Limited Company contractors. It’s a no-brainer for them.

There are 1.6m freelancers in total according to the Professional Contractors Group, so there are plenty of contractors to herd into those vehicles. The Government is also making it much more difficult for public sector contractors to operate through a Limited Company. If they earn more than £220 a day and have been working in a Government department for more than 6 months then they have to prove that they are at low risk of being inside IR35.

HMRC want contractors to use their online IR35 test in order to prove that they are at Low Risk. However, a poll by ITContractor.com shows that less than 20% of contractors who self test are at Low Risk of being inside IR35. The majority of the others are at High Risk. of course this is only HMRC’s view of who is inside IR35. THis is only their interpretation of the IR35 laws.

Despite that, they are asking contractors to use that as the criteria for being in or out of IR35. HMRC are also sending letters out to thousands of contractors asking them to self test using this online test. The onus is then on the contractors to prove that they are at low risk of being inside IR35. They have to furnish HMRC with this proof within a month or risk a visit. The object appears to be to get the contractor to believe that he or she is caught by IR35, and to scare him or her into joining an Umbrella Company.

While that may not be good news for contractors who would prefer to operate through a Limited Company it is good news for those who own the brollies.