Umbrella Companies History – How They Started | UK Contractors

Umbrella Companies History
Umbrella Companies History for newer contractors

Umbrella Companies History


The Umbrella Companies History started in 1999. That’s when IR35 went on the statute books.

Companies were laying off workers on the Friday and re-employing them as contractors on the Monday, doing the same job. It suited both sides as they both saved money.

However, HMRC and the Treasury lost out – and they didn’t like that.

They decided that these people were disguised employees and brought in IR35. That was when Umbrella Companies history began.

Contractor Umbrella Companies
Contractor Umbrella Companies which avoid IR35 tax

IR35 Legislation

Umbrella Companies allowed contractors, who would otherwise be inside the IR35 tax, to save some money. They were able to claim the offices of the Umbrella Company as their ‘home’ office.

They were therefore able to claim travel costs from there to their current client against tax. Furthermore, they were able to do the same with subsistence costs and overnight accommodation. If they joined trade bodies they could claim that too.

They couldn’t claim as much as contractors working through Personal Service Companies. However, they were better off than those paying the IR35 Tax.

HMRC and Umbrella Companies History

Although HMRC lost some tax money that they would otherwise have had, it was reckoned they were happy.

They prefer to deal with a few hundred umbrella companies, than the 200,000 contractors in them, individually.

Also, the Umbrella Companies paid up a whole whack of tax to HMRC every week or month for all their contractors. HMRC didn’t have to wait till after the year was up as they did with Personal Service Companies.

Managed Service Companies

The Government cracked down on Managed Service Companies who were offering more items that could be claimed against tax. They claimed that they had got special dispensation from HMRC.

They hadn’t!

Many of them went under.

However, the no-risks, PAYE Umbrella Companies thrived.

Offshore Umbrella Companies
offshore umbrella companies for contractors

Offshore Umbrella Companies History

Other Contractors went into Offshore Umbrella Companies which gave them 85% to 90% returns on their money.

They copied the likes of David Cameron’s father Ian, George Osborne and Tory grandees Lord Astor and Lord Ashcroft by avoiding tax via this method.

It’s tax avoidance, which is legal rather than tax evasion which is illegal.

Umbrella Companies Threat

The latest threat to Umbrella Companies is via both the Conservative Government and the Labour Party.

Both, are saying that they want to stop contractors claiming expenses against tax. The Conservatives are saying that the client’s office should be the ‘home office’ of the contractor while he, or she, works there.

That would mean that they could not claim for travel and subsistence expenses. They are thinking of doing the same for Personal Service Company contractors.

The IR35 and Umbrella Companies history has always been fraught with worries about what the Government, and HMRC. will do next.

However, as of now, they still offer contractors who would be caught by the IR35 Tax, the ability to offset some expenses against tax.

offshore umbrella companies
Offshore Umbrella Companies


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