Where are we now with personal service companies?

By Tolley

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

  • Where are we now with personal service companies?
  • Introduction
  • Uncertainty
  • Unfairness
  • HMRC investigations
  • Application to office holders
  • Improvements in HMRC guidance and administration
  • Intermediaries and public sector bodies
  • What next?


The IR35 legislation was introduced over 15 years ago, but it remains problematic. In particular:

  • it is often far from clear whether an individual’s engagements are within, or outside, the rules (see the Employed or self-employed guidance note). This causes uncertainty for individuals, who frequently need specialist advice
  • HMRC investigations are burdensome and can be financially crippling
  • the regime is unfair because it treats those within scope of the rules as quasi-employees but without giving them employment rights. As a result, those affected by the regime have long campaigned for its abolition

Each of these is discussed briefly below.


The rules are conceptually simple. They ask only one question: “would the worker have been employed by his client if there were no intermediate company?” (see the Introduction to personal service companies guidance note).

If the answer is yes, the engagement falls within the rules and the worker’s company has either to account for NIC and PAYE on deemed salary, or pay the same amount as salary during the tax year (see the Calculating the deemed employment payment guidance note).

Establishing the answer to the simple question posed by these rules is, however, very difficult. There are no clear definitions of employment and self-employment; instead, the tests derive from numerous employment, tax and negligence cases, and are thus subject to adjustment as new decisions emerge from the courts (see the

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