What is IR35? What is a Personal Service Company (PSC)?
An individual worker might deal with a client business through a
third-party intermediary, typically the worker’s own personal service
company (“PSC”) – please see below as to what a PSC is. Depending on the
circumstances, the IR35 rules might apply to that situation (but will not
apply if a PSC is not used). If the IR35 rules do apply, their effect is to
treat the person who works through the PSC as employed where, if they had
instead worked as an individual (and not through a PSC), the law would have
regarded them as employed, not self-employed. For detailed information please click on the information links and Related Documents below.
If you are an individual who proposes to (or does) work through a PSC or
you propose to (or do) engage an individual who will (or does) work for you
through a PSC, you should read the following pages.
Where a PSC is used, it is the PSC, not the worker, who contracts with the
client and receives payment from the client, with the aim of saving
tax/NIC. The worker is only paid by the PSC by way of share dividends and
sometimes a salary. This way of working is used by a worker because they
consider it more beneficial to themselves to do so than to be engaged
directly by their client as either an employee or self-employed person. It
might also suit the business client because it does not have to administer
PAYE nor does it have all of those legal duties and obligations which are
enjoyed under the law by employees.
Use of a PSC was a common practice, particularly in the IT and media
sectors, but over the years the IR35 rules have been progressively
tightened up, and so there is now often little to be gained by a worker
from using a PSC. Measures tightening up the IR35 rules were introduced in
April 2017. Further measures have been introduced by the Finance Act 2020 which are effective from 6 April 2021 to add further constraints
on the freedom to use a PSC and any benefit from doing so – see below as to
the 2021 changes. There might also be additional changes to IR35 in the
future.