Working through personal service companies

Three different tax treatments

If you work as a contractor, there are three different possible tax treatments which could apply to your engagements depending on your circumstances. For contracts not subject to the off-payroll working (IR35) rules, whether working in the private or public sector, you will be in a position to withdraw profits on a very advantageous tax basis. However, if working in the private sector and a contract is caught under the off-payroll working rules, much of this tax advantage is lost. Any work in the public sector covered by these rules means that the public sector body or agency will effectively treat you as an employee.

Exceptional circumstances

The Covid-19 crisis has no doubt left many contractors without work, but there may be some help under the Coronavirus Job Retention Scheme. You can use the scheme provided you have been receiving salary subject to PAYE and you officially furlough yourself. This means not undertaking any work for your company, although you can still deal with on-going company administration such as bookkeeping, filing tax returns and banking. The scheme will reimburse 80% of your salary, up to a cap of £2,500 per month, plus the related employer NICs.

The crisis has also seen the government postpone the extension of the public sector tax treatment to the private sector. The change was meant to have come in from 6 April 2020, but will now not happen until 6 April 2021.