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Am I required to work through an umbrella company?

Q. I am an independent educational psychologist. up until now (I started working independently in 2008) I have been told that I need to be set up as a limited company for agencies and local authorities to want to hire me. Now I am being told I need to be joining an umbrella company. My circumstances are: I am paid per day by local authorities I carry my own equipment and am not reliant on clients in any way other than what they require (using local authority laptops for security, and so on). I work through an employment agency already. I am not able to claim sick – or leave pay. I pay corporation tax, VAT and NI (company and personal) I complete my accounts through an authorised accountant. Am I required to work through an umbrella company?

A. The circumstances behind being requested to join an umbrella company will likely be due to the Public Sector Guidelines which were introduced from April this year and which now mean that for any contractor working within the public sector, the end client will be responsible for determining the IR35 status of any self-employed contractors engaged. The ‘fee payer’, who will typically be an agency, will be responsible for deducting the tax at source from contractors who are deemed to be employees by the end client.

Contractors needn’t be forced into using an umbrella company and I would advise you to discuss this further with the end client/agency to find out what other options are available. Under the new guidelines it is possible for you to continue to operate through your limited company but the end client would be required to make a decision regarding your IR35 status. If you are still considered to fall inside of IR35, you can continue to use your limited company but the tax will be deducted from your fee for the work, at source by the ‘fee payer’ (e.g. agency).  HMRC have developed on online tool – Employment Status Service tool (ESS) – to help end clients and/or agencies determine the employment status of their contractors. Alternatively an independent review may be accepted (such as an IR35 contract and working practices review), but this should be discussed directly with your agency and end client to establish what the end client and agency will be willing to accept and what their stance is regarding the change in legislation.

For further advice please contact the consultancy team at Qdos Contractor on 0116 2690992.

By Contractor Doctor

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