The contractor landscape has changed significantly in recent years, notably with the rapid rise in UK umbrella companies providing payroll and IR35 services to British contractors.
Working under an umbrella company gives contractors access to a variety of benefits that are not normally available to the self-employed.
These include a continuous employment record, holiday and pension entitlements, tax relief eligibility and insurance cover.
But what factors have driven this increase in UK umbrella companies, particularly in the most recent years?
IR35 stands for 'Inland Revenue 35', the reference number of the press release that announced its introduction back in 1999.
Since then, the Inland Revenue has become Her Majesty's Revenue & Customs (HMRC) and IR35 has undergone several changes.
However, the complexity this rule introduced via the Intermediaries Legislation under Chancellor of the Exchequer (and subsequent Prime Minister) Gordon Brown triggered the start of a rapid rise in use of umbrella companies by contractors looking to simplify their tax exposure.
In 2017 the introduction of off-payroll working rules meant public authorities took on the responsibility to determine whether the contractors they employed (either directly or through an intermediary) were subject to IR35.
This extended to medium and large private-sector clients in April 2021 during the midst of the Coronavirus pandemic.
Even without the uncertainty of the pandemic, many more contractors looked to the security of umbrella companies in order to work as employees, rather than as contractors whose clients could decide their IR35 status semi-arbitrarily.
The pandemic itself led to shut-downs in several major industries and contractors were left with little to no support in many cases.
Although the Self-Employment Income Support Scheme (SEISS) was created to issue grants to self-employed individuals whose income was affected by COVID-19, it had quite an evidential burden and the threat that HMRC would seek to reclaim the grant if contractors filed year-end accounts that were not down by as much as expected.
With the UK emerging from lockdowns, assisted by widespread vaccination, yet more contractors are looking to umbrella firms to gain employee protections that were simply not given to them during the 2020-21 peak of the pandemic.
Umbrella companies are not only beneficial for contractors; they are also useful for clients.
Clients who are subject to the off-payroll legislation rules mentioned above can appoint a single umbrella firm and employ contractors through it, without facing repetitive onboarding admin for each new worker.
This cuts down on delays and costs, while giving multiple contractors access to significant workloads from big businesses across the UK.
Finally, umbrella companies like MyPay+ also operate industry-specific schemes like the Construction Industry Scheme.
This allows us to make at-source tax deductions on behalf of construction contractors, before making net payments over to the contractor.
Contractors benefit from improved compliance with industry regulations, and higher take-home pay than by making standard HMRC deductions, a win-win for those working in affected trades.
Overall, legislation has made it increasingly difficult and costly to operate as a contractor across all sectors of the British economy since the turn of the Millennium.
UK umbrella companies help to redress this balance, cutting through the red tape to protect contractors' earnings and offer some of the statutory protections that are given to conventional employees, but are often denied to those who choose to work directly for clients.
For more information, or to request a bespoke quote for any of our services or solutions, please contact MyPay+ today.