Personal Services Companies (IR35)

The government has introduced changes to the taxation of Personal Service Companies (PSC) engaged by public sector organisations from April 2017.  The intention of the changes is to ensure that where an individual offers services through a company to a third party (such as the University) but the nature of the relationship is more akin to an employee of the third part, then the individual should be taxed as if they were an employee.

PSC are usually:

  • Limited Company or Partnership
  • One majority shareholder (or with spouse, partner or dependant)
  • Individual is main beneficiary from services provided
  • Likely to be only employee
  • Work is similar to that of an employee

The key issues to consider are:

  • Would the positon normally be filled by an employee?
  • Can the Personal Services Company supply a substitute and pay the substitute and in reality is this practical based on the nature of the work being carried out?
  • Can the University move the “contractor” to a different task or project than they originally agreed to do without issuing a new contract or re-negotiating the current contract?
  • Who decides how the work is to be carried out – the University or the “contractor”? (“Control”)  This includes whether the “contractor” is required to follow University’s procedures and receive instruction which apply to employees; who decides the schedule of working hours; where the “contractor” carries out their work.  This less autonomy the “contractor” has, the more likely the relationship is to be akin to employment.
  • What does the “contractor” have to provide for the engagement? If the University provides an office, laptop, telephone, email address etc.. then the relationship is more likely to be akin to employment.
  • How is the “contractor” paid for the engagement? An hourly, daily or weekly rate is more likely to be akin to employment whereas a fixed price for a specific piece of work, payable on completion will point towards a genuine contract for services.
  • If the University is not satisfied with the “contractors’” output, would the “ contractor” have to put it right in their usual working hours at the usual rate of pay (more akin to employment) or in their own time and at their own expenses (more akin to contract for services).

This means members of University Staff who engage PSC must assess their employment status.  If the result shows they are bound by the IR35 rules, the worker should be engaged through HR.  If not, they should be engaged through the Procurement route.

Further information can be found by following this Employment Status Flowchart and completing the Employment Status Questionnaire (P‌D27).  More informaton can be found from the HR webpages: Engaging self-employed people for work