Umbrella Company Feeding Frenzy As Uk Government Implements New Rules

By Author: nitin chauhan
Total Articles: 16
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The UK Government has decided, after recent ‘scandals’, to put in place new rules as regards government departments hiring contractors.This is in response to revelations that the Government’s own departmental managers, including those in the tax collecting HMRC, were receiving their salaries through Limited Companies and were paying themselves through dividends rather than paying tax and National Insurance at the full rate.



It was also in response to the recent press revelations that one third of BBC journalistic ‘staff’ were freelancers operating through limited companies.The BBC defended this by saying that their use of freelancers saved the taxpayer money as they could hire freelancers when the workload was high and lay them off when the workload was low without redundancy payments.Also, the managers being paid through Limited Companies were obvious cases of disguised employees so they should have been caught by existing IR35 legislation.However, the Government decided that they must act as Governments tend to do.



They have issued instructions to their departments ...
... that any contractor paid more than £220 a day who has been there for 6 months would have to operate as an IR35 caught contractor and pay tax as if he or she was an employee or face having their contracts terminated.If departments don’t enforce this then they will be fined heavily.As public sector IT Contractors earn an average of £330 a day this means that they are virtually all caught for IR35.



However, there is a way out of this which will have umbrella company owners rubbing their hands in anticipation of a windfall, as the contractors could dump their Limited Companies and operate under an Umbrella Company. The Umbrella Company would effectively employ them and that will get everyone off the hook.So, expect many contractors to take this route by the time that it comes into force on September 15th of this year.



Freelancers will be hoping that his is the end of the ‘scandals’ as every time another one happens the Government use it to bash them and to extract more tax out of them.However, it will mean that fewer contractors will want to bring their skills and expertise to the public sector and the public sector will lose out on labour market flexibility.However, the press will have been shown that the Government has taken action.



Gerry McLaughlin is the CEO of UK IT Contractor umbrella companies website www.ITContractor.com.