IR35 - The impact to individuals providing services via Personal Service Companies

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This article was updated on 31 July 2020 to reflect confirmation that IR35 rule changes will take effect from April 2021.

The Government has confirmed that it will reform the off-payroll working rules (commonly known as IR35) from 6 April 2021.

This change impacts an estimated 170,000 individuals who supply their services through an intermediary, such as a personal service company (PSC), and who would be deemed employed if engaged directly.

The impact of these changes should not be underestimated, and sufficient preparation is crucial.

How will this change impact the supplier of these services in the private sector?

The reform will mean that the right to decide whether the off-payroll legislation applies to an engagement will be removed from the contractor and will rest with the end user, where the end user is a medium or large business that has a UK connection.

There will be an obligation on the end user to issue a status determination statement confirming their status decision and their reasons for that decision to the contractor.

The end user of the services will be required to set up a status disagreement process and respond to representations made by off-payroll workers within 45 days of receipt.

The end user will also be obliged to confirm, where requested, whether or not they qualify as a small business for a particular tax year.

What should individuals be doing now?

If you are providing your services through an intermediary, such as a PSC, you need to understand whether your engagement is likely to fall with the new rules if you are expecting to provide services for a particular client that will continue on or after 6 April 2021. 

Don’t underestimate the time it may take to correctly establish the position and implement any changes which might be required. There will be cash flow implications as a result of a change in status which need to be planned for.

Begin by asking a few questions:

  • Is your end user a small company and/or a wholly overseas business? If so, they are outside of the rules and your PSC will need to continue to self-assess whether the off-payroll legislation applies to your contract.
  • If the end user is a medium or large company, start a dialogue to establish their attitude to the contract. Are they likely to determine that you fall within IR35?
  • If the end user does conclude that you fall within IR35, will they look to renegotiate the contract to compensate for the additional employers NI cost to them? If this happens will they give you the option of becoming an employee?
  • Do you need to wind up your existing PSC and if so when is the optimal time to do so?
  • What will HMRC’s attitude be to a change in status? Whilst HMRC have said that they will not use information resulting from the changes to open a new compliance check into a PSC unless there is reason to suspect fraud or criminal behaviour, they can still open an enquiry under existing IR35 rules.

How can RSM help?

Our specialists have a detailed knowledge of the proposed rules and practical experience of implementing the changes.

We have a multi-disciplinary team of experts who can provide advice and help you prepare for all aspects of the proposed changes, including:

  • reviewing and advising on existing structure;
  • performing a status check to establish whether IR35 applies to the contract;
  • establishing the status of the end user;
  • calculating the financial impact of any changes;
  • assisting with the appeals process; and
  • negotiating contract changes on your behalf.

Download the pdf version

The impact of IR35 reforms to individuals providing services via personal service companies from 6 April 2021.

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