Working through personal service companies
When an employee is not an employee?
If you work as a contractor, the personal service company tax avoidance rules prevent you from saving income tax and national insurance contributions (NICs) by interposing a limited company between you and your ‘employer’ (or client). The rules – known as the ‘IR35 rules’ after the number of the press release in which they were first announced – were introduced in April 2000, and only take effect where you would be treated as an employee if you worked directly for the client under the same terms.
The IR35 rules applying to public sector engagements were reformed in April 2017, and the results were very unpopular. Despite this, the government is planning to extend the reform to the private sector from 6 April 2020, subject to a small organisation exemption, making it essential for contractors to be clear about their employment status.