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Can an umbrella company be 'IR35 compliant', or 'HMRC approved'?
Posted Sep 22, 2010
Umbrella companies use a variety of slogans and messages to advertise their services, and to differentiate themselves in a very competitive market.
Examples include: 'HMRC approved', or 'IR35 compliant', or claims that the company has a 'special dispensation' for expenses.
Although these phrases sound impressive, in reality all PAYE umbrella companies operate in the same way, and none receive any special treatment from HMRC.
'IR35 Compliant' Umbrella Companies
If you become an employee of an umbrella company, IR35 becomes irrelevant, as you pay income tax and national insurance contributions as a 'normal' employee.
You are not working via your own limited company, so IR35 does not apply.
At a stretch, you could argue that umbrella companies are complying with IR35 in the fact that none of their employees could be caught by the rules!
'HMRC Approved' / 'Special Dispensations'
HMRC does not 'approve' any umbrella company, nor do they grant 'special dispensations' to individual schemes.
In essence, dispensations are provided to umbrella companies to help them cut down on paperwork.
If umbrella companies had to collate all the receipts relating to every business expense claimed by every client, the administrative burden could be immense.
The size of dispensations may vary between umbrella companies, but this has no bearing at all on how much you can legitimately claim as business expenses.
You can find out more in our guide to umbrella companies and expenses dispensations.
Do your research
As we explain in our top tips for comparing umbrella companies, umbrella companies can really only compete on price, customer service, and any 'bolt on' extras they can provide their clients.
So, if you're looking to join an umbrella scheme, don't be fooled by the wrapping, and make sure you look inside the box before signing up!
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