Composite companies - Composite company

Composite Companies: Next >>

[Page 1]

IMPORTANT

After reading this section you will NOT have an accurate and up to date understanding of composite companies until you have read our new section on the Managed Service Company rules or MSC Rules.

Composite Companies:

Like an umbrella company, a composite company is also a specially created company whose shareholders are all contractors and which enters into contracts with its contractors' agencies or clients.

The big difference between an umbrella and a composite company is that, before the introduction of the MSC Rules, the composite company would remunerate its contractors with a combination of salary and dividends. This was a more tax efficient remuneration strategy but the dividend element was subject to IR35. That is to say, in an IR35 enquiry, composite companies would need to satisfy the Inspector that their contractors were truly self employed otherwise the dividend would become taxable in the same way as a salary.

Convenience:

Many contractors used composite companies because they were very convenient. They were as convenient as an umbrella but slightly more tax efficient. There were generally no joining or leaving charges and the composite provider would generally take care of most of the administration charges.

Drawbacks:

For those who intended contracting for the long term, there were number of drawbacks to using a composite company. In the event of an IR35 investigation, it would need to be demonstrated that the contractor was NOT working under arrangements that would be regarded as employment if the intermediary did not exist. It would need to be demonstrated that the arrangements under which the contractor was operating were genuine self employed business arrangements. The use of a composite company may have made this more difficult to do (see below).

Additionally, it should be remembered that when HM Revenue & Customs launched an IR35 enquiry, all contractors involved in the composite company in question were likely to be drawn into the investigation. So if the Revenue started investigating a contractor in a composite company for IR35, it is possible that all the contractors in his composite company would get drawn into the enquiry. Composite companies did not have the "insulation" that Limited Companies have in this respect.

Next >>

Full index of pages:

Home Page IR35 Background - page 1 IR35 Background - page 2 IR35 Background - page 3

IR35 Rules - page 1 IR35 Rules - page 2 Beat IR35 - page 1 Beat IR35 - page 2

Beat IR35 - page 3 Beat IR35 - page 4 Ltd Company - page 1 Ltd Company - page 2

Ltd Company - page 3 Ltd Company - page 4 Umbrella Companies - page 1

Umbrella Companies - page 2 Composite Companies - page 1 Composite Companies - page 2

Composite Co - page 3 Composite Co - page 4 MSC - page 1 MSC - page 2 IR35 Insurance

IR35 Investigations - page 1 IR35 Investigations - page 2 Contracts - page 1

Contracts - page 2 Contracts - page 3 Resources 1 Resources 2 Resources 2 Sitemap