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Contractor doctor: can contractors using umbrella companies be caught by IR35?

Dear Contractor Doctor,

I am new to the contract market. In fact I am still in permanent employment but have recently been interviewed for a contract position.

I have been in contact with an umbrella company whose literature states that by working through them I will be considered a permanent employee and therefore not open to IR35 investigations.

I have read that contractors working through umbrella companies CAN be caught by IR35.

What is your opinion on this matter? Can contractors using umbrella companies be caught by IR35?

[Name supplied]

Dear Contractor

If the umbrella company is stating that you will be considered employed then this means that you will be treated as if caught by IR35 and that they are operating a PAYE umbrella.

All contractors can in theory be caught by IR35 irrespective of they payment structure.

If you are being treated as a permanent employee, then naturally, you would not be open to investigations because you are not attempting to prove you are NOT caught, and there is no tax being avoided.

There are two main options for contractors to structure their finances: PAYE umbrella or Limited Company. You can read about these here:

Here's the best advice for your next steps:

  1. Secure a contract offer. Don't sign it or agree to it yet.
  2. Get IR35 legal advice and negotiate your contract for IR35 compliance.
  3. Then sign the contract
  4. Then decide how to set up your finances.

The reason for this order, particularly number 4, is that the choices you have for how you set up your payments will depend on your IR35 status. If you are outside IR35 then limited company is the best route, otherwise umbrella might be more suitable for you.

Do as much as you can to pass IR35 though. The financial impact of being caught by IR35 is considerable.

Good luck with your contracting.

Contractor Doctor

Updated: Tuesday, April 17, 2018

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