A personal service company is not primarily chosen by individuals because it is a mechanism to avoid tax.
Pick up a copy of one national tabloid covering the employment status case of BBC Hustler actor Robert Glenister, and you’ll see how close they come to saying the opposite. In fact, according to the paper in question, its news item states: “Mr Glenister…. worked through a personal services company for tax purposes.”
While that might be one for a libel lawyer to look into, the wider point here is that this reporting is wrong, unhelpful and even dangerous.
The reporting implies that personal service companies are a mechanism to avoid tax, and that those choosing to operate through a PSC are doing so specifically to avoid tax. But this is not factually correct.
The two most common reasons for setting up a personal service company are:
1.To limit liability so that personal assets are not at risk (compared to sole traders) and;
2.Due to the requirements of the end-client, as many do not engage sole traders.
To reiterate — the fact that working through a PSC can be tax-efficient is not the main motivation for using it . Indeed, government research undertaken by the business department in 2016 indicates that just 1% of self-employed people perceive paying less tax as the main advantage of this structural choice.
Their main motivations were actually flexibility; independence and more job satisfaction (in order of preference). However, despite this evidence there is a widespread perception that self-employed people choose this form of working to deliberately avoid tax, and the more that such media stories propagate this myth, the more pressure there will be on chancellor Philip Hammond to introduce measures that address this perceived problem in Autumn Budget 2017 . That’s why such reporting isn’t just inaccurate; it’s potentially dangerous too.
Back to Mr Glenister. We’ve been told, anecdotally, that individuals were told to work through PSCs by the BBC. The rationale behind this advice is unclear. While it could have been a deliberate attempt to reduce the corporation’s employer’s national insurance bill, it could also simply be a policy decision akin to other end-user organisations that prefer (due to tax implications for themselves) not to engage sole traders.
In this instance, Glenister could have sought independent advice to help ascertain his IR35 status, and indeed he may well have done so. Whether or not the BBC told him to work through a PSC, unfortunately for him and as this case proves, the liability sits with the PSC.
Since April 2017 however, this liability has changed for public sector contractors. Now, their hirer is responsible for deciding IR35 status of the assignment, and the”fee-payer” is responsible for ensuring that appropriate tax and NICs are paid.
That these changes which have been put in place around IR35 in the public sector could be rolled out to the private sector is concerning. At the very least, there needs to be a post-implementation review of the effectiveness of the public sector changes — enforced by the off-payroll rules — before the government and its agencies consider any wider scope, as per the government’s Regulatory Policy Committee expectations for policymaking.