Up until 1999, the majority of contractors worked through their own personal companies exploiting the small salary/ large dividends route available to them. By using this intermediary system of the paying of dividends, contractors were able to escape both NI Contributions and upper rate tax.

In this way, the tax advantages of working through the dividend route far way outweighed any other contracting vehicle, and it is easy to see why most contracting professionals opted for this route.

Sadly with the introduction of IR35, these tax advantages that were previously available have now been removed. It is widely accepted that the vast majority of temporary workers fall within the IR35 web and explains why today, umbrella companies are the vehicles of choice for most freelancers and contractors.

Unfortunately it is a little known fact in contracting circles that HMRC have launched a second purge against companies advocating non-IR35 compliant methods.

With the first wave of purges, contractors has not only been faced with the headache of a HMRC investigations for being under theses schemes, but were also hit with both massive penalties and interest charges for the underpayment of taxes.

This trend is not only likely to continue, but it is going to worsen as HMRC intensify their campaign.