Umbrella Companies Tax Avoidance
Yesterday, in the blackest day ever for UK contractors, the Tories Declared Tax War on Contractors. The Chancellor has now set his sights on Umbrella Companies Tax Avoidance.
Previously the Chancellor and the Government have made attacks on Offshore Umbrella Companies and other offshore schemes and those who use them.
This was very much titling at windmills as the offshore umbrella companies use the Government’s own rules and tax incentives for the benefit of contractors.
Onshore Umbrella Company Owners
Onshore umbrella company owners tended to look down their noses at the operators of those schemes and declared that their onshore umbrella companies were wholly compliant with HMRC.
Not any more they aren’t!
The Chancellor, in his budget yesterday, has declared the schemes they use to disguise contractors as permanent employees, in order to get them tax relief on travel and subsistence, as tax avoidance and has cracked down on it.
Umbrella Company owners fondly believed that they had a special relationship with HMRC – even though contractors who were caught by IR35 entered Umbrella companies so that they would not have to pay it.
One umbrella company owner told us that HMRC and the Treasury would rather deal with, and legislate for, a few hundred umbrella companies than several hundred thousand individual contractors.
That seemed to make a certain amount of sense.
Every month they collected PAYE from contractors and sent it on to HMRC faithfully.
They believed that HMRC saw this mass tax collection on their behalf as advantageous to them and so were happy to turn a blind eye to umbrella companies disguising contractors as permanent employees in order to claim tax relief they would not have got as IR35 taxpayers.
How wrong they were!
They were deluding themselves.
Umbrella Companies tax avoidance was in the Chancellor’s sights.
The Chancellor, HMRC and the Tories saw them as tax avoiders as well and their umbrella companies as tax avoidance mechanisms too.
And the Chancellor intends to put a stop to it.
How many contractos will now want to pay a monthly fee to umbrella companies when they are not able to claim any travel and subsistence expenses in tax relief by joining them.
There are 200,000 umbrella company contractors in the UK.
They are now up for grabs.
Staying or Leaving Umbrella Companies
Some may stay as they want to have their admin all handled by the umbrella company.
However, others will see no financial benefit in staying with the umbrella company. After all, they could simply pay the IR35 tax without the umbrella company’s monthly fee.
If yesterday was the blackest day ever for the contractor industry, it was many times blacker for the umbrella company industry now that umbrella companies tax avoidance has been targetted by the Chancellor.
Where To Now for UK Contractors?
The Chancellor has similarly attacked contractors using limited companies.
So, where to next for UK contractors who don’t want to pay the full IR35 tax?
One that has been around for a long time but has only recently been taken advantage of by UK contractors is limited partnerships.
For more information on limited partnerships click on The Limited Partnership Option for UK Contractors