Is an umbrella company the same as working inside IR35?

Working under an umbrella company is not the same as a contracting role which falls inside IR35. The off-payroll working regulations, known as IR35, are rules which only apply to directors of personal services companies.

If you’re working through an umbrella company, that means, you’re an employee of the umbrella company for tax purposes. So, these rules don’t apply to you.

When working through a personal services company (PSC), you’ll either be working Inside or Outside IR35. Currently you’ll need to determine this yourself.

• If you’re working Inside IR35, this means you would have been an employee if you were providing your services directly to the client. You’ll need to pay income tax and National Insurance contributions in line with being an employee.
• If you’re working Outside IR35, you’re considered to be truly self-employed.

You can read more about IR35 here.

What about when the rules change in 2021?

In April 2021, the responsibility for who makes the IR35 determination changes from the personal services company to the end client. This follows a similar change which took place in the public sector. The market expects that this will lead to many end clients choosing not to work with PSCs in the future and requiring all contractors to be employed via umbrella companies. The experience in the public sector also showed that many roles currently deemed Outside IR35 will be deemed Inside IR35 using the new government tool for making these determinations.

If you’re working through an umbrella company already you won’t be affected because you’re an employee. You’ll continue to be paid in exactly the same way after the change to the regulations.

If you’re currently working through a PSC then the changes will impact you. You may want to look at umbrella options. It’s important to understand if switching is the right option for you. Why not read about the benefits of umbrella companies?