Umbrella Companies

A substantial industry grew up in the 1990’s and 2000’s of accounting service companies – companies that will run other people’s personal service companies or lump them together in ‘umbrellas’.  The tax rules for umbrellas have much in common with those for employment agencies.

Since the 2007 budget this has become much more difficult.  The then Chancellor announced that a new tax status would be created for ‘managed service companies’.  These will have a mechanism for transfer of PAYE liabilities, so that their directors and officers and others that have benefited from them can be personally liable for PAYE.

The legislation is draconian and will pick up personal service companies if their service providers are not careful.  It also risks picking up certain kinds of employment agency that have nothing to do with managed service companies.  However, it is the law.  Very specialist advice is required here if one is not to put one’s assets at risk, and generally we would recommend consulting top tax counsel on this issue.  At David Kirk & Co we can instruct those barristers directly – no need to pay for a lawyer – and we also know what questions to ask them.  As is well known, a counsel’s opinion is only as good as the brief that he is given. Last year we successfully got a client off a £14 million managed service company inquiry.

At the same time, the Revenue & Customs are having a crackdown on travelling expenses paid by umbrella companies.  It is still generally possible to pay travelling expenses free of tax, but both the circumstances and the contracts must be right, and tailored advice should always be sought.

For advice on how to ensure that you are not caught by this draconian legislation, or on how your umbrella company can pay travelling expenses, contact us for more information.