Business & Finance mortgage

IT Contractor Umbrella Company advice. Which Umbrella Company option is for you?

IT Contractor Umbrella Company advice. Which Umbrella Company option is for you?

Umbrella Companies

Umbrella Companies are a new phenomenon which started after IR35 was created just over a decade ago. Nowadays a large percentage of IT Contractors feed the money they earn from their IT Contracts through an Umbrella Company.

IR35 was set up because the Government believed that some IT Contractors were just ‘disguised employees'. It was designed to catch those who finished as a permanent employee at a company on the Friday only to become a contractor at the same company on a Monday. As contractors they were able to claim all sorts of expenses including travelling expenses.

Umbrella Company Net

Unfortunately the IR35 legislation caught a lot more than those contractors in that particular net and so Umbrella Companies came to the fore.

Umbrella Companies allow IT Contractors to be able to claim some expenses against the business. Some more dicey Umbrella Companies got set up called Managed Services Companies but the Government has now clamped down on that particular type of Umbrella Company.

Another type of Umbrella Company, the EBT, has started up which puts the earnings from a contractor through an offshore trust but the Chancellor has promised to crack down on that in 2011.

Safer Umbrella Companies

It is obviously attractive to an IT Contractor if his Umbrella Company allows him or her to keep more of his hard earned money but in the long term he is better with a safer type of Umbrella Company – especially the Umbrella Companies who treat the contractor as a PAYE employee.

Those Umbrella Companies do everything for the contractor including processing timesheets, invoices and the payroll and are still able to let him or her claim some expenses.

Umbrella Company Choice

In the long term those type of Umbrella Company will allow the IT Contractor to be able to sleep safely in his or her bed at night knowing that HMRC and the Chancellor are not going to introduce retrospective legislation which means they have to pay years of back tax.

The choices for IT Contractors are Limited Companies if they think they are outside IR35, safe PAYE Umbrella Companies or the more risky type of Umbrella Company which will let them keep more of their money but may put them at future risk of paying back tax.
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