Can my client use his PSC as an umbrella company?

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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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By Matrix
06th Nov 2020 05:44

You don’t need to have an umbrella, can’t he just treat the contract as inside IR35?

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Replying to Matrix:
ALISK
By atleastisoundknowledgable...
06th Nov 2020 06:05

He asked the question. Besides, it'll make our calculations far easier wont it?

(for avoidance of doubt, that is an added bonus, not the reason why it's being proposed).

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blue sheep
By NH
06th Nov 2020 07:33

I dont really understand the question - what would be the benefit of calling himself an umbrella?

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By Sandnickel
06th Nov 2020 07:39

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.

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By Paul Crowley
06th Nov 2020 08:21

I am lost on this
Agree Matrix and Sand: also would ask same as NH

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ALISK
By atleastisoundknowledgable...
06th Nov 2020 08:38

Only thing I can think is that he’s been told he has to go through an umbrella and doesn’t want to pay their fees.

I’ll ask further and will report back ...

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Replying to atleastisoundknowledgable...:
By Duggimon
06th Nov 2020 09:14

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.

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Replying to Duggimon:
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By atleastisoundknowledgable...
06th Nov 2020 09:25

Thanks Duggimon - that's what I thought, just put much better & fuller.

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