If you work on projects for larger businesses through your own personal service company (PSC), you may pay less tax and NIC than would be paid overall if you were an employee of those businesses.
The IR35 tax avoidance rules came into effect in April 2000, to prevent individuals from playing the system and paying less tax by working through their own PSC, when in reality they should be taxed as employees.
Recently there has been a rash of IR35 cases heard at the tax tribunals. HMRC won one concerning a TV presenter, but in three other cases the taxpayers were successful.
If you provide services through your own PSC, and don’t want to pay more tax than you have to, make sure you retain evidence of your working arrangements to support as many of these points as possible:
• You can refuse to accept the contract and terminate it on your terms
• Your customer is under no obligation to provide you with work
• You have the right to send a substitute to work in your place
• You can hire others to help you with the task
• You have control over how, where or when you perform the tasks
• You are treated differently from your customer’s employees
• You provide at least some of your own equipment
• You take on financial risk, by (say) having to correct work in your own time
• You can work for other customers concurrently
• You and your customer do not intend to form an employer-employee relationship
There are proposed changes to the IR35 rules from April 2019, which may make it more difficult to prove you are an independent contractor. Contracts for public sector bodies are already subject to different rules.