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An Uncertain Future for Limited Company Contractors?

In recent weeks it seems as though HMR&C has had one target in their sights and that is PSC’s, or single person Limited Companies.

IR35 Business Entity Tests

Contractors, who operate through a Limited Company, have long since been under the cloud of IR35, the legislation which dictates whether or not they can claim dividends from their company or whether they must process their earnings through PAYE, but HMR&C has now put them under added pressure. They have introduced an IR35 Business Entity Test which has been described as ‘flawed’, ‘disappointing’ and a ‘missed opportunity’ and has done little if anything to relieve the confusion which surrounds IR35. However, it is universally agreed that it will lead to more HMR&C inspections, more tax tribunals and, ultimately, more hassle for contractors.

HMR&C has now also announced a consultation into individuals working through PSC’s who are considered to be ‘controlling persons’. Unusually, this has arisen as a result of questions being raised about the tax paid by senior public sector workers who were operating, outside IR35, through PSC’s, despite the fact that they were, to all intents and purposes, working as employees.

It is proposed that individuals who are able to ‘shape the direction of the organisation, having authority or responsibility for directing or controlling the major activities of the engaging organization during the year’ must pay tax via PAYE as an employee of the company that they are working for. Unlike IR35, the obligation for the correct payment of taxes will fall on the employer and not on the individual.

When working through an umbrella company you will always be paid PAYE and you will be working under a Contract of Employment, which means that all of the above will be of no concern to you!

If you would like more information about ContractorUmbrella, our specialist advisors will be more than happy to have a chat with you about your requirements. Please email us on or you can call on 01206 713 680.