A good deal of anxiety has been circulating in recent years about the prospects of an HMRC clampdown on umbrella companies – fears which, if anything, have gathered momentum in the wake of the austerity measures announced by the Chancellor to tackle the UK’s eyewatering budgetary deficit. However, according to a leading tax expert from the international law firm Osborne Clarke, such worries are almost certainly far in excess of the reality.

Kevin Barrow, a partner in the law firm, was addressing the Association of Professional Staffing Companies when he made his remarks. He added that PAYE umbrella servicer providers don’t simply support large numbers of contractors in the UK’s freelance community, they “perform a valuable, practical function” for HMRC, too.

Were it not for the efforts of umbrella companies, Mr Barrow continued, tax revenue which is now efficiently collected by them for HMRC might simply disappear into the black economy. Any freelancer who chooses to work for a PAYE umbrella company will pay income tax and will also be protected against IR35 liability. HMRC benefits from a guaranteed source of revenue and simultaneously avoids the necessity for convoluted and expensive IR35 investigations.

HMRC may decide to tighten the screw, however, in specific areas such as overarching contracts of employment and “artificial” employment contracts. For most contractors working for well-run, bone-fide umbrella companies such as Crystal Umbrella, however, any clampdown in these practises will be of no relevance.

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