A contractor who usually works outside IR35 is about to start a contract insude IR35. Rather than pay an umbrella company, he's asked if he can use his own company as an umbrella.
My gut says "no" as he's the director/shareholder, but I can't see anything that says either way.
Does anyone know of any relevant quidance / legislation?
Thanks
Replies (8)
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I dont really understand the question - what would be the benefit of calling himself an umbrella?
To be an umbrella you would have to employ other workers (and adhere to the legislation in place for these types of companies).
Having 1 director means he is a PSC.
He's most likely been told to go through the umbrella company because they make the accounting for IR35 simpler. If he goes through his own company then the customer has to reassess IR35 and consider whether it applies and make the deductions if it does. With the umbrella company they do not.
As a company offering the services of the owner/director, your client is a personal service company. He can't just call himself an umbrella company and even jumping through the hoops to make himself an umbrella company wouldn't help, because the customer knows who they want to deal with, because it removes the need for them to reapply the process of verifying the non-IR35 nature of the engagement.
Umbrella companies are thriving not because it's better for anyone tax-wise to use them, it's because they fill a gap that was created by moving IR35 responsibility to the customer, by making it possible for the customer to pass their responsibility on and save a lot of time, money, and effort.
I do think if your client's company took on more staff in the same line of work as him and they were all able to sub for one another and the contracts were with the company and not for specific individuals then they could avoid IR35 by effectively becoming an umbrella company, but doing so doesn't address the reason most of the big companies are using umbrella companies.