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Why are umbrella companies being required more often?

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    Why are umbrella companies being required more often?

    I see a lot of contract ads now specify that an umbrella company must be used, not own ltd. For contracts inside IR35. Does anyone know why this is? It is perfectly possible to be inside IR35 and still go through your own ltd., so I am not understanding why brollies are being mandated.
    Last edited by willendure; 15 December 2020, 22:15.

    #2
    Because IR35 doesn't apply to somebody operating through an umbrella. It's effectively a non-issue when it comes to compliance and regulation.

    If a company operates with you inside IR35, they can still be on the hook for failed tax payments. And how do they go about ensuring that you're compliant?

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      #3
      Because the truth is coming out: most contractors are in fact permies in disguise.

      Comment


        #4
        Originally posted by PCTNN View Post
        Because the truth is coming out: most contractors are on fact permies in disguise.
        Bollocks. Scaring companies into being risk-averse and chucking everybody through brollies says jack all apart from they don't want to HMRCs next cash cow.

        Comment


          #5
          Originally posted by willendure View Post
          I see a lot of contract ads now specify that an umbrella company must be used, not own ltd. For contracts inside IR35. Does anyone know why this is? It is perfectly possible to be inside IR35 and still go through your own ltd., so I am not understanding why brollies are being mandated.
          Have you been living in a bunker for the last 4 years

          Mods - sockie tastic


          Sent from my iPhone using Contractor UK Forum

          Comment


            #6
            Originally posted by PCTNN View Post
            Because the truth is coming out: most contractors are in fact permies in disguise.
            In banking this is indeed true


            Sent from my iPhone using Contractor UK Forum

            Comment


              #7
              Actually the issue is one of ability rather than risk

              In the order of risk of upsetting HMRC (from least to most risky on a tax compliance basis)

              1) Agency payroll (but a lot of smaller agencies don't want the hassle)
              2) Deemed payments to a third party employer (Professional Employment Organisation). This is where the agency does the tax but offloads the employment to someone else - avoid like the plague
              3) Deemed payments to your limited company (no one actually does it so it's not worth the hassle)
              4) Umbrella company

              And note there is a big increase in risk between options 3 and 4 as for the first 3 options the agency is directly paying the tax to HMRC so has zero risk that the appropriate tax has not been paid but for umbrella companies they have to trust the umbrella and that's hard than you might expect - I really do think there will be a few nasty surprises for some agencies who have used umbrellas next year.

              However when you look at agency interests and avoiding the hassle of dealing with employment issues the reverse is true - in terms of potential none tax related hassle the issue goes

              1) Umbrella Company (will have all appropriate insurances)
              2) Professional Employment Organisation (will have appropriate insurances)
              3) your limited company (insurance may not be valid as no longer the cash to pay for it).
              4) Agency payroll (it's work)

              So agencies insist on umbrella companies for their piece of mind and to reduce the work they have to do.
              Last edited by eek; 16 December 2020, 07:49.
              merely at clientco for the entertainment

              Comment


                #8
                Originally posted by GhostofTarbera View Post
                In banking this is indeed true


                Sent from my iPhone using Contractor UK Forum
                It is indeed

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                  #9
                  Originally posted by vwdan View Post
                  If a company operates with you inside IR35, they can still be on the hook for failed tax payments. And how do they go about ensuring that you're compliant?
                  Makes sense. If my Ltd. doesn't pay the right taxes, agency or even client is on the hook.

                  My specific problem is... my Ltd. own its own office building on which it pays a mortgage, heating, electricity, insurance, repairs, computers, internet/phone etc. So I need money coming through the Ltd. to cover all these expenses. I would like to remain outside IR35 and operate as a genuine business, but if there will be no possibility of finding a contract that would allow this after April, things are a bit screwed for the Ltd.

                  Perhaps I could pay my Ltd. rent on the office...

                  Or else I am going to have to wind the Ltd. down and transfer the assets to myself, which will no doubt incur a big fat tax bill (and repaying of the mortgage).

                  Comment


                    #10
                    Originally posted by willendure View Post
                    Makes sense. If my Ltd. doesn't pay the right taxes, agency or even client is on the hook.

                    My specific problem is... my Ltd. own its own office building on which it pays a mortgage, heating, electricity, insurance, repairs, computers, internet/phone etc. So I need money coming through the Ltd. to cover all these expenses. I would like to remain outside IR35 and operate as a genuine business, but if there will be no possibility of finding a contract that would allow this after April, things are a bit screwed for the Ltd.

                    Perhaps I could pay my Ltd. rent on the office...

                    Or else I am going to have to wind the Ltd. down and transfer the assets to myself, which will no doubt incur a big fat tax bill (and repaying of the mortgage).
                    No inside IR35 contract solves your problem there. Any inside IR35 contract with deemed payments means that your company should be paying the money directly to you and anything not paid to you becomes a director's loan to the company.

                    I would be trying to adopt a different approach bypass the agencies and start offering your services directly..
                    merely at clientco for the entertainment

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