Contractors and subcontractors operating through umbrella companies have fallen victim to substantial pay deductions since changes to IR35 in the public sector were implemented last April.

Many use umbrella companies to ensure tax compliance. But a report by The Mirror has found that some subcontractors in the construction industry have seen £42.95 deducted from their weekly wages as an administration fee. In some cases, a further £2.50 is deducted for insurance. This comes swiftly on the back of HMRC recently billing recruitment consultants for unpaid tax.

Supply teachers are feeling the pinch too.  The Guardian has found that almost a third of supply teachers have been forced to join an umbrella company to get work from an agency. Yet their pay has been drastically reduced because of the fees they are charged.

One teacher said that she is charged between £15 and £28 simply for using the agency’s nominated umbrella company. This can easily add up to over a £100 in fees per month. And many other teachers are finding themselves in the same boat.

Half a million workers affected

On the matter of umbrella companies, The Guardian writes: “Critics say they have become the latest way to exploit more than half-a-million temporary workers in the UK, denying them basic employment rights and shifting the employer’s responsibility to pay national insurance contributions and pensions.”

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Many rightly fear IR35 changes. The government’s plans to roll out changes to the private sector will have a hugely damaging effect on other contractors.

Financial burden

“We are now in a situation whereby the government’s proposal to extend IR35 changes to the private sector will serve only to increase financial pressure on hard-working contractors,” said political and economic advisor Tom Purvis, writing for IPSE. “Earnings are still below where they should have been following the financial crisis. This will only worsen if something is not done.”

Purvis fears that rolling out IR35 reform into the private sector will push more contractors into exploitative umbrella structures. “With growth at a pitiful 0.1% in Q1 2018, the government should do all in its power to avoid increasing pressure on living standards,” said Purvis. “Recognising and preventing the damage that would be caused by extending IR35 would be the best place to start.”

HMRC recently launched its consultation on IR35 reform. The consultation  will run until 8th August 2018. So remember to have your say.

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