Umbrella Companies – Why The Uk Government Loves Them

By Author: Mike Nielson
Total Articles: 162
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Umbrella Companies – from Outcasts to Government favourites

Umbrella Companies we love you – UK Government

IR35

Before the advent of IR35 in 1999, most contractors went down the Limited Company route.

There was no such thing as a Contractor Umbrella Company then.

Contractors were able to claim all sorts of expenses against tax.

The Government set up the tax IR35 as they believed that some contractors were actually ‘disguised employees’ and they wanted them to pay their full share of taxes.

Indeed it was becoming a regular practice at some companies at the time for one of their permanent employees to leave the company on a Friday and start back again the following Monday as a contractor.

The company won as they didn’t have to pay all sorts of administrative expenses and the ‘employee’ won because he or she was able to claim all sorts of things against ...
... tax.

Who lost?

The taxman obviously - and he didn’t like that.

Caught In Net

However, when IR35 was passed it caught more than those disguised contractors who metamorphosed from a permanent worker to a contractor over a weekend.

It also caught in its net many genuine contractors who had been working away in Limited Companies for a number of years.

So, the Umbrella Company was born.

Contractors could go into umbrella companies and were allowed to claim a certain amount of expenses, usually up to 5% of their income.

Although the Government admitted it had caught too many contractors in its net, once they saw the extra tax coming in from them they didn’t want to change it.

Now there are 200,000 contractors who have gone this route out of the UK’s estimated 1.4 million contractors.

Extra Taxes

It has been estimated recently that the savings that a Limited Company contractor can make equates to £10,000 a year compared to his fellow contractors in the brollies.

Let’s do the maths then, 200,000 x £10,000.

That’s £2 billion.

The Coalition Government had a review of IR35 after the last election as they had promised they would do before the election.

The Professional Contractors Group set up to fight IR35 was hoping they would abolish it.

However, the review decided that they wouldn’t abolish it and one of the main reasons given in the report was that it might make contractor leave their brollies en masse and set up Limited Companies again.

The Government did not like that idea one bit.

Indeed it is the Government’s interest that as many contractors as possible are inside Umbrella Companies.

For more information on umbrella company,contractor mortgages and umbrella companies. Please visit: http://www.itcontractor.com/