Are you a contractor? Are you planning to work through your own limited company in the new tax year? New IR35 rules could mean that it’s time to rethink the ltd way of working.

Changes to off-payroll working (IR35) rules mean that contractors are more likely to be caught out. From the start of the 2021/22 tax year, private sector clients will be responsible for judging a contractor’s IR35 status for the first time.

This is likely to lead to many more ‘inside IR35’ judgements, with affected contractors forced to pay more in tax and National Insurance. While these contractors need to pay tax as if they are employees, they do not enjoy any of the additional benefits that come with employment, including holiday, sick and maternity pay.

The other factor that limited company contractors may want to consider is how much time, effort and money they spend on tasks like accounts and administration. Once the tax benefits of contracting through a limited company are removed, you may seriously question all of this additional time and expense.

Advantages of using an umbrella company

One of the best alternatives to contracting through a limited company is to use an umbrella company. Using an umbrella company like Umbrella.co.uk means that you will pay the same level of tax as an inside IR35 contractor, but you’ll enjoy more of the benefits of employment like holiday and sick pay.

• No need to worry about IR35
• Employment benefits like holiday and sick pay
• No-hassle payments system
• Low and predictable fees

For more information about joining an umbrella company, speak to a member of the team. Call: 0800 121 6513.

Five signs you should abandon limited company contracting

If one or more of these apply to you, you may want to take professional advice on closing your limited company. Speak to one of our IR35 experts today. Call: 0800 121 6513.

1. Your client has said you’ll be ‘inside IR35’

If your client thinks that your job role falls inside IR35 then there’s a high chance that any future clients will think the same.

2. Your client controls how you work

If your client has a high degree of supervision, direction and control over what, how, when and where you complete your work, you’re likely to be judged inside IR35 by all current and future clients.

3. You can’t send someone to work in your place

The down side to being a talented contractor is that often times, clients will not accept an employee or sub-contractor working in your place. This puts you at risk of being ‘inside IR35’.

4. Your client is obliged to offer you work and you are obliged to accept it

The ‘mutuality of obligation’ principle is a hallmark of employer-employee relationships. If this sounds like you then you’re likely to be a ‘disguised employee’ in HMRC’s eyes.

5. It costs more to run your limited company than you get back in tax savings

Once the tax benefits of working on ‘outside IR35’ contracts are taken away, operating through a limited company can be expensive. Using an umbrella company is different. It takes the hassle out of contracting and typically costs less than a mobile phone contract.

For more information about joining an umbrella company, speak to a member of the Umbrella.co.uk team. Call: 0800 121 6513.