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 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 IR35 rules, much of this tax advantage is lost. If working in the public sector and caught under IR35, then the public sector body or agency will effectively treat you as an employee, despite the use of your intermediary company.

From 6 April 2020, the government is planning to extend the public sector tax treatment to the private sector, although this will be subject to a small organisation exemption. Early in January, the Treasury announced that the latest changes will be reviewed prior to implementation, although there is some uncertainty over whether there is now sufficient time to make any major changes.