Umbrella Companies

      

      In the old days, most IT Contractors operated through a limited company and claimed all sorts of expenses for operating as such.

      

      Many still do.

      

      However, after the introduction of the IR35 tax in 1999, many contractors were deemed ‘disguised employees’ by HMRC and the Government.

      

      This was especially the case if the contractor had worked for a long period at the same client site and was, more or less, controlled by the client like an employee.

      

      This caused many contractors to join Umbrella Companies.

      

      Employer

      

      The Umbrella Company became the employer of the contractor.

      

      It operates like a Payroll company, producing the contractor’s invoices and paying the contractor when the money has been obtained from either the agency, or if the contractor goes direct, from the client.

      

       Contractors operating under an Umbrella Company can still claim a certain amount of expenses allowed by HMRC which are not available to those caught by IR35.

      

      Receipts have to be produced for all expenses if the contractor is being investigated by HMRC.


       Nowadays most contractors either operate through a limited company or through an umbrella company.