IR35 doesn’t affect umbrella workers – here’s why!

Since 6th April 2017, changes to the intermediaries legislation (IR35) have affected contractors who provide services to the public sector via their own personal service company (PSC).

An umbrella company is an alternative to a PSC. It is an employer for people who work on temporary contracts, such as supply teachers, locum nurses and IT consultants.

Our umbrella company, Key Portfolio, employs thousands of public sector contractors. They join Key Portfolio as a means of getting paid and gaining some additional benefits. We give them a Contract of Employment, take on all employment responsibilities for them, run their payroll and provide access to a range of benefits (such as sick pay, maternity pay and shopping discounts).

We’re pleased to confirm that the changes to the intermediaries legislation will not have any impact when the worker is paid through an umbrella company.

This is clearly confirmed by HMRC, whose guidance includes a list of situations which are outside the scope of IR35. This list includes: ‘If an agency or similar third party that supplies the worker … uses an umbrella company to employ the worker which deducts Income Tax and NIC.’

We can confirm that Key Portfolio (KPPES Ltd) is an umbrella company. We employ the worker and treat their payments as employment income, meaning they’re subject to the deduction of PAYE tax and NIC. This puts us outside the scope of the reform and so contractors in the public sector can continue using our services without any impact on the agency or public authority.