IR35 rule changes pose a significant challenge for limited company contractors that work closely with their clients. If you’re a contractor, there is a strong chance that you will be caught out by IR35 if any of the following statements apply:
• Your work is supervised by the client
• You have a set start or finish time
• You cannot legitimately send a substitute to work in your place
• You have an obligation to accept work and your client has an obligation to offer work
If you are judged to be ‘inside IR35’ you will be forced to pay tax as if you are an employee, but you won’t enjoy any of the benefits that typically come from employment.
The umbrella solution
Joining an umbrella company is the best option for many contractors trapped by IR35.
Using an umbrella company means that you’re viewed as an employee, with your wages paid through PAYE. It allows you to hold onto the freedom that comes with contracting while also enjoying the benefits of being an employee – particularly holiday and sick pay.
Umbrella contracting is also the easiest way to run your business. You don’t need to worry about taxes and other admin heavy processes. All you need to do is submit a timesheet signed by your client to your umbrella company and recruitment agency.
Advantages of umbrella working:
• No need to worry about IR35
• All the flexibility of contracting
• Benefits like holiday and sick pay
• No administrative headaches
At Umbrella.UK Insolvency, we specialise in helping contractors wind up their solvent limited company and, with our sister company Umbrella.co.uk, switch to an umbrella model.
Winding up your limited company
The best way to close your limited company may be to liquidate your company through a Member’s Voluntary Liquidation (MVL). A MVL is a legal process that solvent companies can use to liquidate assets in the most tax efficient way possible.
Using a MVL means that limited company contractors can pay capital gains tax on any reserves left in the business, rather than income tax. Contractors may also be able to benefit from Business Asset Disposal Relief (formerly known as Entrepreneur’s Relief), which can reduce capital gains to just 10%.
Are you trapped by IR35? Find out how you can close your limited company tax efficiently and move to umbrella working with Umbrella.UK Insolvency. Call: 0800 611 8888.