Umbrella companies, also known as employment benefits companies, differ from personal service companies, agencies and composite companies in that they genuinely employ the contractor.
The contractor is paid a salary based on what they earn from their clients, which is paid direct from the client to the umbrella company, which then pays the contractor after deducting tax and National Insurance Contributions.
The crucial differences with HMRC compliant umbrella companies are that:
- They operate a PAYE scheme, directly employing contractors
- Some have a Dispensation from HM Revenue and Customs, which allows contractors to claim qenuine expense allowances
- Contractors are paying a fair rate of tax on their income.
The main organisations affected by IR35 are listed below; click on them for further explanations:
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