Many specialists work through a personal service company — a limited company they own, with themselves as the main or only employee — rather than as a sole trader or an employee of the client. Since April 2000, if they would have been an employee of the client without that company, IR35 can treat a slice of the company income as a deemed salary with PAYE and NIC.
HMRC cannot say a company is an “employee”. They can say the person would have been one. A wrong IR35 decision is corrected going forward and HMRC will try to collect earlier years with interest and penalties.
Managed service companies
From April 2007, separate rules catch managed service companies and many umbrella arrangements: an intermediary the worker does not control, even if they hold a small share, in the UK or overseas. Payments to the worker can be deemed subject to PAYE whatever form they took. MSC rules are looked at before IR35.
Who decides IR35 now
Public sector clients, and medium and large private-sector clients, generally decide status and operate PAYE where the rules apply. Small private-sector clients can still leave the decision with the worker’s company. Size tests follow the Companies Act thresholds published on GOV.UK — confirm the current figures before you rely on the small-client exemption. The worker can dispute a client’s status determination.
HMRC treat aggressive PSC and MSC structures as something to discourage. An enquiry can sit on the person, the company, or both.
How Solaratax helps
We already look after contractor companies. For an enquiry we reconstruct the working practices, test the determination, and negotiate deemed-pay figures if IR35 or the MSC rules do apply.
Call 01615 314179 or email enquiries@solaratax.co.uk for a free, confidential discussion. We will not contact HMRC in your name until you instruct us to act.
Questions we are asked
Related investigations
Employment status enquiries
When HMRC says a “contractor” should have been an employee — construction, IT and everywhere else labels are used.
PAYE investigations
Employer record visits: pay, benefits, status, CIS and the way a payroll check can open VAT or director enquiries.
Company tax investigations
Corporation Tax enquiries, directors’ private records, and the way VAT or PAYE often gets pulled in.
Talk to Solaratax
128 City Road, London, EC1V 2NX. 01615 314179. enquiries@solaratax.co.uk. Free, confidential, no obligation.
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