Personal service company rules

Produced by Tolley
Personal service company rules

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Personal service company rules
  • Scope of the rules
  • Company as intermediary
  • The notional contract
  • Office-holder
  • The calculation
  • Payment to the individual

Many people supply their services to clients, not directly as a self-employed person, but via a company. The tax and NIC advantages of this way of working are significant. See the Introduction to personal service companies guidance note.

Since April 2000, anti-avoidance legislation, known as ‘IR35’ or the intermediaries legislation, catches individuals who would be employees of their clients if they didn’t use a personal service company (PSC). See the Employed or self-employed guidance note. Broadly, this legislation deems income to be subject to tax and NIC, so that the individuals pays a similar amount to an employee under PAYE.

Separate legislation exists for tax and NIC. In most cases both sets of legislation produce the same outcome, but not invariably. See the Other points on personal service companies guidance note for more information.

Scope of the rules

To be within IR35 the following criteria apply:

  1. there is an engagement for personal services where the services are provided to another person (‘the client’)

  2. where the client is a public sector body or, from 6 April 2021, a large or medium-sized private body, separate rules for off-payroll working apply and so IR35 doesn’t. These rules are similar to IR35 but with the responsibility for deducting tax and NIC lies with a different party

  3. the circumstances are such that the worker would be regarded as an employee of the client if the PSC was n

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