As you are no doubt aware, IR35 rules have once again been updated and come into effect today, 6th April 2021.   But it only affects companies that are either medium or large, so for the moment IR35 changes do not apply to small private sector companies.   

Small businesses will continue with the existing IR35 rules where the PSC has to assess themselves to see if they fall within the IR35 rules.

In addition, if you carry out your services offshore, even if it is through a personal service company (PSC), then the IR35 rules do not apply.

If you operate a personal service company, the client would look at the working arrangement and decide if that individual (even if he is working through a limited company) is employed or self employment.

To self assess, we would recommend that you utilise the HMRC CEST tool.   There are some key questions that help to determine whether an individual is employed or self employed.   These would include:

CORE employment status tests

  • Personal service – if substitute sent, not PSC – and mutuality of obligation – length of time involved in mutuality of obligation, the longer, the more likely to be like employee eg. in situ for over 6 months working full time then it is very likely that mutuality of obligation has arisen and therefore that person would be deemed to be employee – mutuality of obligation possibly does not occur if gaps in service provided and the issue of longevity does not apply if the PSC company has lots of different clients.
    • Control test
    • What does the PSC business look like – does it have its own logo, own website, own workwear etc,
    • Does the PSC business provide its own equipment
    • Does the PSC business carry a certain level of financial risk, eg they may not get paid for their service, or they are on a fixed fee, so if the job takes longer, the PSC business will miss out
    • Do they have multiple clients and carry out jobs for other people
    • Do they look like they are part and parcel of the client’s business – eg. supervisory roles, are they invited to staff functions, can you differentiate them from other employees of that client.
    • Does the PSC company manage its own time, or work from their own home or off site

If you use the HMRC CEST tool, you can use this as a defence if HMRC were to enquire into your situation

Any contract issued to a PSC company should not state your personal name, but the name of the business itself.   There should be a clear end date for the contract, with no mention of line management, or notice periods, or job description (instead just a description of services) and ideally no set working hours or overtime rates.

The client should issue the PSC contractor with a Status determination statement advising the PSC or individual what the decision is and why, so whether IR35 does or does not apply.

We recognise that this is a very difficult area and you may need specialist advice if you feel that you could be falling foul of the IR35 rules.   However, the first point of contact in this case would be the client for whom you are carrying out a contract of services.   We have included a link below to the HMRC website where you can find the CEST tool.   We also enclose a flowchart for further clarification.