Umbrella Companies Clampdown
David Milliband is promising an Umbrella Companies Clampdown if he wins the next election.
He plans to create more nurses, doctors and hospitals for the NHS by grabbing money from the usual suspects – tobacco companies, hedge funds, the rich and UK contractors.
The clampdown is all about the expenses that contractors can claim if they operate through an umbrella company.
IR35 and Labour
The Labour Government brought in IR35 in 1999 to combat what they saw as Limited Company contractors who were really ‘disguised employees’. They were people that their companies laid off on a Friday and then re-started on a Monday doing the same job as before.
The IR35 net, however, caught more than just those UK contractors. It caught many who were contracting for years.
Very few UK contractors pay the IR35 tax. If they are caught by IR35 legislation they usually operate through PAYE Umbrella Companies.
Their ‘home’ offices are now the Umbrella Companies offices rather than their own homes.
They can claim travel expenses and subsistence expenses like overnight accommodation when they work at their client’s office.
Now, the small amount that they are able to claim against tax is under threat by both Labour and the Conservatives. Both parties are looking at it as a way of bringing in more tax.
Both the major parties are planning an umbrella companies clampdown as regards expenses.
The Conservatives are looking at umbrella company expenses long term but short term they are looking at making the client’s offices the contractors’ place of work. This would mean that contractors could not offset any travel and subsistence expenses against tax.
The Labour Party umbrella companies clampdown is expected to raise £670m annually for the NHS. If you do the maths, you can see that the UK’s 200,000 umbrella contractors will be losing most, or all, of their expenses.
Personal Service Companies
Of course, there will be worries that Umbrella Company Contractors will simply move back to using Personal Services Companies.
The Conservatives have thought of that too.
They are planning to do the same with Personal Service Company contractors. They are going to make the contractors’ main place of work their client’s place of work. This is so that they can’t claim expenses either.
This umbrella companies crackdown could have very serious ramifications for the UK Contracting industry.