Contractor payment structures and IR35
As a contractor, your IR35 status is not dependant on your payment structure.
Whether you fall inside IR35 is solely dependant on the contract between your limited company (or umbrella company) and the end client. In addition your working arrangements also need to be considered. The factors you need to consider are based on IR35 case law.
What options do contractors have when using Umbrella companies?
Since the April 2007 Budget and the introduction of the Managed Service Company Legislation, there is only one umbrella option available, namely the PAYE umbrella company.
...your IR35 status is not dependant on your payment structure.
If you use a PAYE umbrella scheme, all your revenue is taxed as though you are an employee, the same as if you were inside IR35. You could in theory use a PAYE umbrella if you were outside IR35, but high earning contractors will lose out on significant tax advantages. For those contractors outside IR35 a limited company is now the most tax efficient route.
Contractors using the umbrella option can claim valid expenses before taxes are applied which thus mitigate their personal tax burden. The take home pay via the Ltd company route (outside IR35) is much higher than via the PAYE umbrella route (inside IR35).
Can contractors use umbrealla companies to avoid the IR35 tax?
The only way to avoid the financial impact of IR35 is to ensure your contract and working practices put you outside IR35.
No, and since the MSC Legislation the opposite is true - by using an umbrella you are being taxed as though you are caught by IR35. The only way to avoid the financial impact of IR35 is to ensure your contract and working practices put you outside IR35 and to form a limited company.