…They should go there for the benefits.
Since 6th April, when the new IR35 rules for public sector workers became law, we’ve seen a surge in the use of umbrella solutions in the contractor marketplace. However, rather than people choosing an umbrella solution, unfortunately we’ve seen evidence of some contractors being forced down that route. The wholesale transfer of groups of workers being forced down a particular route is frowned upon by HMRC, and there is no need for this action to take place.
At Danbro we’ve discussed the main two options – Limited Company and Umbrella – with thousands of individuals leading up to, and in the weeks after, the change on 6th April. Many chose the Umbrella option, with the main reasons being: higher net pay, easier administration, easier communication with the provider, access to enhanced benefits (Bupa, sickness benefit, life insurance, Danbro Rewards), and ‘employed status’ which helps with credit ratings and mortgage applications.
However we always give best advice depending on the personal circumstances of the individual, and many of our customers have also decided to carry on working through their own limited company, with the relevant intermediary deducting PAYE taxes (known as the deemed salary calculation), before any payment is made into the limited company bank account if they’re within IR35. A deemed salary means you’re effectively being taxed as an employee, but without the usual employee rights or protection. With the umbrella option, you’ll receive those rights in the form of sick pay, holiday pay, statutory maternity and paternity pay, as well as the added benefits mentioned above.
As with any change in legislation, new models have appeared – we’ve seen models which abuse the employment allowance, are caught by the MSC legislation, and umbrella companies who use ‘loyalty points.’ HMRC are gradually catching up with these tax avoidance schemes, and are publicly explaining their position via the ‘spotlight on tax avoidance’ publications.
Be wary – a credible accountancy provider should never force you into a particular accounting or payroll solution. And if you feel that a model is too good to be true, it probably is. As a firm of CIMA-regulated accountants, you can rest assured that all of our solutions are 100% compliant, and we will only ever provide expert advice based on what’s best for you.