Composite Company
Composite companies are managed service providers who serve contractors and freelancers. Like umbrella companies they provide a hassle free alternative to running a company. Composite companies exist in many forms and were prevalent before the introduction of new legislation.
Up until the introduction of the 2004 Finance Act composite companies were thought to have been responsible for numerous tax avoidance schemes. In 2006 the (then) Chancellor Gordon Brown announced that composite companies would be investigated to establish their true work function. This and IR35 tax rules meant that composite companies were no longer profitable for contractors or freelancers.
Working for a composite company can suggest to HMRC that you are trying to avoid paying tax. This can lead to investigations which cause problems for you and the company. Recent additions to HMRC guidelines suggest that investigations are becoming common place.
Umbrella companies have become a much more realistic option for contractors. This is because they offer services that are HMRC compliant and adhere to all tax rules set out by the government. They also protect you from any legal disputes and deliver a much more detailed service.
