Public sector contractors: are umbrella companies the answer?

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The changes to IR35 in April 2017 affects how people in the public sector work through limited companies. If you’re a public sector contractor who usually contracts through a limited company, read our guide to find out how these changes may impact you and discover whether working as an umbrella company employee could be the best solution.

What is IR35?

IR35 is an anti-avoidance tax legislation that was brought in by the government in 2000 to prevent people from making significant tax savings by disguising their employment status. This describes instances in which someone would perform their duties through their own limited company though their role is similar to that of a company employee. They would then enjoy the tax benefits associated with this. For more information, you can read our in-depth guide to IR35.

What do the changes to IR35 mean?

Up until 6 April 2017, it was down to the contractor themselves to deem whether or not their contract was inside or outside IR35. Now it is the responsibility of the public sector body (end client) to make this assessment and inform agencies and candidates if the role is inside or outside. As many public sector bodies announced that they will be treating all of their contracts in the same way, often as declaring them all as inside IR35, this can affect your income and may ultimately mean that you could take home less.

Is an umbrella company the best solution for me?

If your public sector contract is deemed as inside IR35, your earnings for that assignment are considered the same as a full-time employee so you would have to make the same national insurance and tax deductions as an employee would. As such, working through an umbrella company may be the best solution for you.

Advice from Parasol

If you require any further information about IR35 and whether an umbrella company is the best solution for you, our Best Advice team are here to help. To speak to a member of the team, just call 0800 464 0632 or email enquiry@parasolgroup.co.uk.

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