IR35: HMRC updates rules on working through an umbrella company – ‘this is a good start’ | Personal Finance | Finance

IR35 rules were originally introduced in 2000 and following this, umbrella companies emerged. These companies are typically set up as a standard limited company and are operated by a third party who acts as an “employer” on behalf of its contractor employees.

These umbrella companies can provide cost advantages but their appropriateness has been called into question over the years.

In late March, Dave Chaplin, the CEO of ContractorCalculator, discussed umbrella companies on a BBC Radio 4 MoneyBox episode.

He warned: “When the Off-Payroll legislation is rolled-out into the private sector in April, tens of thousands of contractors are likely to be required to work through an umbrella model so I would urge firms who use umbrella companies to conduct their own due diligence and ask for cast iron proof, not promises, that all payments are being made correctly.”

Umbrella companies were also recently discussed in Parliament as Ruth Cadbury, the Labour MP for Brentford and Isleworth and Officer for the Loan Charge All-Party Parliamentary Group (APPG), called for the Government to abolish them completely.

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“But there’s a real opportunity in this Finance bill to address some of the specific concerns. Clause 21 in the bill deals with ‘worker services provided through intermediaries’ and it had been described in the explanatory notes as ‘addressing an unintended widening of the conditions which determine when a company is an intermediary.

“But actually this is a change following lobbying efforts by umbrella companies, the legislation, as originally drafted, would have meant that the recruitment agencies would have to put workers on their own payroll, where they would also have enjoyed the protection protections offered by existing agency legislation, and this would have also meant closing the door on tax avoidance schemes.

“But now that door has swung wide open again, which is a very odd thing to be doing while at the same time as claiming it to the Government intends to clamp down on tax avoidance schemes.

“The Government could simply strike out clause 21, which would then ensure workers got the agency rights, they should be getting agencies can run their own payroll, they do for their own staff anyway, they do not need umbrella companies, and neither do their contractors or the Government could redraft clause 21 To seek to stop the exploitation.”

In commenting on the changes, Crawford concluded with the following: “This is a good start. “We have been working closely with HMRC on this document and pressing for HMRC to provide information on umbrella companies, and not just about the disguised remuneration risks.

“We have asked for HMRC to also develop an umbrella pay calculator for its website that will allow interested parties to check the pay illustrations they may have been provided.

“This will not only expose the disguised remuneration schemes, although many of these do not provide any illustrations or information in writing, but also expose those providers who may be attempting to obfuscate and hide exactly what they are doing.

“We are also still working with HMRC to try and find a way to more proactively use the combination of data provided through intermediary reporting and RTI.

“This, I believe holds the key to severely limiting market access for the ‘have I got a good idea for you’ schemes and stamping out malpractice.”

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