IR35 / Personal Service Companies

Stephen Hignett, Tax Partner, CMS

Following the recent news coverage concerning senior civil servants being paid gross (i.e. without the deduction of PAYE or NICs) through personal service companies, it is perhaps unsurprising that the Government has today announced that it is bringing forward a package of measures to tighten up on tax avoidance through the use of personal service companies.

These measures will include HMRC strengthening its specialist compliance teams and consulting on proposals which would require office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.

Exactly how this new proposal will operate is not yet clear.  The suggestion would seem to be that it will be the company to which the services are provided (and not the personal service company “through” which the services are provided – as is generally the case under the current personal service company rules) which will bear the PAYE  and NICs risk.  If this is the case, albeit that the new proposed rules may only apply to very senior personnel, the party contracting for the services of the senior person will have to consider carefully the PAYE / NICs treatment and will not, as is often the case today, be able effectively to shelter behind the worker’s personal service company, safe in the knowledge that that personal service company will bear any risk of a deemed PAYE liability.

The Government has also undertaken to simplify the way in which the existing personal service companies legislation (also known as ‘IR35’) is administered.


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