Umbrella Company owners are licking their lips.
The future has never seemed brighter for them. In 1999, prior to IR35 there were no Umbrella Company contractors. Now there are a growing 200,000. In the early days of Umbrella Companies it was thought that the Government would eventually clamp down on them as they were allowing contractors to claim some expenses against tax. It was thought that the Government wanted them to pay IR35 tax. It looked as if the Government wanted genuine businesses to use Limited Companies or Personal Service Companies as they now like to call them. All other contractors would pay IR35 tax.
However that doesn’t look to be case now. The Professional Contractors Group claim that figures showing how little the Government get in actual IR35 tax shows that IR35 is a failure. However, surprisingly, the Government seem to be quite comfortable with contractors joining Umbrella Companies. After all, it is easier to legislate for a few hundred umbrella companies than 1.6m freelancers. It is much easier to deal with them too rather than individual contractors. Also, they take the tax from the contractors and pay it to the Government which makes it easier for HMRC.
The Government, who say that they want to extend IR35. They have devised an IR35 Test. They have also set up a new Compliance Team of 36 to chase down contractors. The Government would love to see all one-man band contractors out of Personal Service Companies and into an Umbrella Company. The reason is that they get an average of 10 grand a year more from Umbrella Company contractors than Limited Company contractors. So, since IR35 came in the Government are now making an extra £2bn a year. As only 200,000 of the country’s 1.6m freelancers are in them that leaves a lot of scope for the Government to increase their tax revenues. They wouldn’t even have to change the la. They would just have to scare contractors out of Limited Companies and into brollies. That’s why Umbrella Company owners are smiling these days.
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