HMRC shuns contractors in favour of umbrella workers

12/10/2021 - 10:37

New figures show that HMRC pays most of its temporary workers through umbrella companies.

However, the UK tax authority has denied that it has a partial outside-IR35 hiring ban in place.

HMRC’s accounts, which run to the end of March 2021, show that the taxman engaged 403 temporary workers in one year. Of this number, only 15 were classed as ‘inside IR35’, which means they were operating through a limited company, but paying tax and National Insurance contributions like an employee.

Of the remaining 388 individuals used by HMRC, the vast majority are umbrella companies.

While an HMRC spokesperson would not confirm exactly how many temporary workers were ‘outside IR35’ limited company contractors, but they did tell Computer Weekly that the number was small enough that disclosing it could lead to the identification of individuals. 

A separate source said to be close to HMRC told Computer Weekly that fewer than five contractors worked on an outside IR35 basis.

HMRC’s IR35 hiring ban?

This relatively low number of outside IR35 contractors lead some industry commentators to question whether the agency has a partial IR35 hiring ban in place.

Because HMRC is a public sector organisation, it was forced to change the way it applies IR35 rules in 2017. Rather than contractors making a decision on their own IR35 status, it was up to public sector bodies like HMRC to make this determination for them.

Because umbrella contractors are technically employed by an umbrella company, IR35 rules don’t apply. Some public sector organisations try to avoid dealing with complex IR35 rules by only hiring umbrella workers.

In April 2021, the public sector IR35 rules were extended to private sector organisations. It’s thought that this has prompted many private sector organisations to stop using limited company contractors altogether.

For more information about umbrella contracting, speak to a member of the team today. Call: 0800 121 6513.