UK Government want Contractors out of Limited Companies and into Umbrella Companies
Submitted on Fri, 29 Jun 2012
The UK Coalition Government in the UK has signalled that it wants as many contractors as possible to operate through a Contractor Umbrella Company rather than through a Limited Company.
The reason is clear to see.
The Government obtain an average of £10,000 a year extra in tax and National Insurance contributions from contractors operating through Umbrella Companies than they do from those using Limited Companies.For them it’s a no-brainer during these times of austerity and budget cuts.The Conservative Party had promised the Professional Contractors Group, prior to the election, that they would look at IR35 again.IR35 was set up in 1999 to catch those people who left a company on a Friday and rejoined on a Monday as a contractor doing the same job.The PCG were hoping that when they looked at IR35 again they would abolish it.
However, when the Government did set up a panel to look at IR35 again after they won the election it was not the outcome that the PCG had wanted or hoped for.The PCG had been set up in 1999 specifically to get IR35 abolished.However, the panel set up by the Coalition Government recommended that IR35 should not be abolished.
The panel said that if it was abolished many contractors would leave their Umbrella Companies
and operate using Limited Companies.This would mean less tax and NIC income for the Government.The panel saw this as a bad thing and so did the Government who accepted their recommendations.Indeed, the Government went further.The Chancellor said, in his last Budget, that IR35 would be strengthened.
He said that 36 Compliance Officers would be recruited, operating in three teams out of Edinburgh, Croydon and Salford and their main purpose was to extract more IR35 tax from contractors.To help with this they have set up an online questionnaire to show contractors whether they are at High, Medium or Low Risk of being caught by IR35.The trouble is that, although the questionnaire was created by the PCG the points awarding system was created by the Revenue.
The Revenue has also changed tack and is sending out lots of letters to contractors asking them to take the test and then asking them to prove that they are outside IR35.If they cannot, or don’t reply within a month, then they will take the next step of a home visit.It looks as if their aim is to scare contractors away from setting up Limited companies and to herd them into contractor Umbrella Companies.
Umbrella Company contractors number 200,000 when there were none in 1999.
However, that is still only a small percentage of the 1.6m freelancers that the PCG calculate that there are in the UK.It is in the Government and the Revenue’s interests to move that number upwards.It looks as if the Contractor Umbrella Company is now the Government’s favourite vehicle for contractors.
About the Author
Gerry McLaughlin is the CEO of UK IT Contractor Umbrella Company website www.ITContractor.com.
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