Contractor Co-operatives Becoming All The Rage | Outside IR35

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Contractor Co-operatives
Contractor Co-operatives - the new way of operating

Contractor Co-operatives

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It woul be worth your while looking at contractor co-operatives.

With the Chancellor and the Tories targetting one man bands, whether in Umbrella Companies or Limited Companies, it is not surprising that contractors are looking for other alternatives.

One such alternative is the use of Contractor Co-operatives.

According to Co-operatives UK, the new tax year will see record numbers of contractors and other self-employed workers.

Their report, Not Alone, shows that a record 4.8m people now call themselves self employed.

Freelancer Limited Company vehicle
Freelancer Limited Company options

That’s 15% of the workforce.

They also say that the number of freelancers is likely to grow more over the next year.

Forming Contractor Co-operatives

Another phenomonon that they have recognized is the growth in freelance workers getting together to form co-operatives.

They can share services this way. The services, therefore, that they can share include

  • back office support
  • debt management
  • contract advice
  • access to finance
  • access to sickness insurance and other insurances
  • shared us of equipment and access to workspace

Those freelancers who have formed co-operatives include music teachers who formed a co-operative to market their services to schools and interpreters laid off by Capita, who now provide interpretation services to judicial courts through the co-operative.

There are a number of co-ops in the IT area.

Giving Contractors Greater Clout

The use of co-operatives might be very useful in allowing contractors to bid for work at a client company.

Freelancers / Contractors
Freelance Contractors at Work

Usually companies won’t allow them to bid because they are one-man bands and because they don’t have the finance to cover it.

So, having the backing of a co-operative would go a long way to alleviating these concerns.

Growth Potential

The report reckons that there is considerable growth potential for these contractor co-operatives. According to Ed Mayo, Secretary General of Co-operatives UK:

“Self-employment offers freedom and, by coming together in co-ops, freelancers can share the risks and responsibility.”

Pat Conaty, co-author of the report and a freelancer himself, said:

“Working alone can be aspirational, but it can also be lonely and anxious. So, there is an extraordinary opportunity for new co-operative solutions for self-employed people, giving them the freedom of freelancing with the muscle of mutuality.”

Remaining Self-Employed

The co-op works by the individuals remaining self-employed (or in Limited companies or umbrella companies) but using the co-op to supply certain services for them.

The freelancers earn their usual fees but pay a fee / charge to the co-op in return for the services supplied.

Moreover, there are certain tax advantages of using a co-operative too.

Tax Avoidance Schemes for contractors
Tax Avoidance Schemes for UK contractors

Mutual Trading status Tax Advantages

Freelancers can benefit from ‘mutual trading status’ depending on how the co-op works, which is a significant benefit.

Basically, the contractors are outside the co-op but any trade they do with the co-op, subject to certain restrictions, are not taxed.

Mutual Trading status prevents double taxation, such as through IR35.

So, if HMRC criteria is met, the co-op is exempt from paying corporation tax on its profits – because it is carrying on a mutual trade.

The report is published by Co-operatives UK, Wales Co-operative Centre and Unity Trust Bank. The full report and a summary can be downloaded from www.uk.coop/notalone

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