The Personal Service Company and IR35

Concept

A personal service company (PSC) is a company through which an individual supplies personal services, for example as a consultant, IT contractor, sportsperson, presenter or creator. It can receive fees and other business income, retain profits, and pay the owner salary or dividends subject to the relevant rules. Incorporation does not itself establish self-employment or guarantee a tax saving. IR35 asks how an engagement would be taxed if the individual contracted directly with the client.

The UK intermediaries rules, IR35, govern the tax treatment of personal services provided through an intermediary. This page explains Chapters 8 and 10 of ITEPA 2003, the status test, the offset for tax already paid, compliance checks, appeal deadlines and costs. The media cases below illustrate how outcomes depend on the complete relationship. The same statutory framework can apply in other sectors; sector-specific issues are covered in taxation of sportspeople in the UK and the creator's holding company.

Two separate questions need examination. First, the tax status of the client engagement: IR35 can require employment-like tax and NIC treatment even though the company remains a valid legal entity. That tax result does not by itself grant employment rights. Most of this page is about that risk: the mechanics of Chapters 8 and 10, the substantive test, the case law, the offset for tax already paid, the interface with a compliance check, deadlines and cost. The second risk switches on when the owner moves — the company stays registered in the old country but is managed from the new one. Only the British half of that fork is set out here (sections 14 and 18 CTA 2009, section 1141 CTA 2010); the general mechanics of dual residence, allocating functions between countries and attributing profit live in economic substance, holding structures and the CFC material.

Key parameters

The parameters of the regime are collected below; each is developed in its own section.

The figures repeat facts from the sections below.

How IR35 works: two chapters of one statute and who pays for a wrong call

The intermediaries rules sit in Part 2 of the Income Tax (Earnings and Pensions) Act 2003. Chapter 8 is the original IR35 regime introduced in 2000: where it applies, the worker's intermediary determines status and accounts for any deemed employment payment. Chapter 10 introduced client-led status determination in the public sector from 6 April 2017 and for medium and large private/voluntary-sector clients from 6 April 2021. A public authority is not exempt merely because it is small. Where the private/voluntary-sector client is small, or the client is wholly overseas with no UK connection, the intermediary remains responsible under Chapter 8. Under Chapter 10 the client must take reasonable care and issue an SDS; the deemed employer, which can be an agency rather than the client, accounts for PAYE and NICs. Liability can move to the client when its statutory duties are not met. HMRC explains these responsibilities.

The substantive question in both chapters is whether the worker would be an employee for tax purposes under a hypothetical direct contract with the client. Ready Mixed Concrete supplies the framework: personal service for remuneration with sufficient mutual obligations, sufficient control, and an overall assessment of the remaining terms and circumstances. The third stage must weigh the whole relationship; another client or a substitution clause is not an automatic exemption. HMRC's CEST tool can support the analysis, and HMRC says it will stand by a result based on accurate information used in accordance with its guidance.

Since 6 April 2024, Chapter 10 has had a set-off mechanism for eligible tax already paid or assessed on the same engagement. It can reduce the deemed employer's liability where the statutory conditions and a qualifying trigger event are met. Its earliest relevant payments are 6 April 2017 for public-sector engagements and 6 April 2021 for private-sector engagements brought into Chapter 10 on that date. This mechanism must be distinguished from Chapter 8 cases and from other relief against double taxation.

The offset from 6 April 2024: how a gross demand becomes a net one

SI 2024/355 inserted regulations 72GA–72GC into the PAYE Regulations 2003. A qualifying trigger event must occur on or after 6 April 2024; it can include a regulation 80 determination, a settlement offer, a recovery notice, or a determination becoming final and conclusive. The client or deemed employer must supply information enabling HMRC to identify the worker and intermediary and relevant returns. Under HMRC's set-off procedure, an actual calculation is used where figures can be established; a reasonable estimate is used where the relevant tax is identifiable but the exact amount is not. The mechanism is not an unconditional refund or a flat-rate discount.

The following categories can qualify, to the extent they relate to the relevant engagement and meet the set-off conditions:

• the intermediary's corporation tax on the income from the disputed engagement;
• income tax and primary NICs on salary the intermediary actually paid the worker;
• Class 2 and Class 4 contributions;
• dividend tax paid by the owner on distributions from the intermediary;
• income tax on partnership profits, added after consultation.

Not deducted are employer's NICs paid by the intermediary, section 455 CTA 2010 tax on loans to participators, the tax of other employees and shareholders of the intermediary, Class 3 contributions, the apprenticeship levy and VAT. Only the income tax and primary NIC part of the demand is reduced: the deemed employer pays its own secondary NICs in full.

HMRC's worked example using 2024/25 rates covers three engagements, each paying a PSC £60,000. Two PSCs and their workers have filed returns; the third has not. The calculation separates gross liabilities, eligible tax and the amount remaining:

The reduction is 23%. Employee and employer NICs remain unchanged in this example; the PSCs' own employer NICs follow a separate refund process. The result depends on filed returns and the tax associated with each engagement, rather than a standard percentage deduction.

Direct contracts and the partnership case

Gary Lineker & Anor t/a Gary Lineker Media v HMRC [2023] UKFTT 340 (TC) was decided on 27 March 2023 by Tribunal Judge Brooks. The dispute covered tax years 2013/14 to 2017/18 and contracts with the BBC and BT Sport; HMRC had issued regulation 80 determinations for income tax and section 8 notices for contributions.

The key was not the nature of the work but the form of the intermediary. Lineker did not work through a company but through Gary Lineker Media, a general partnership. A partner signing on behalf of the firm binds himself personally under section 5 of the Partnership Act 1890. From that the tribunal drew a direct conclusion: the contracts existed between the BBC and Lineker, and between BT Sport and Lineker, and the intermediaries legislation presupposes an intermediary. The judgment leaves no ambiguity: "because there were direct contracts <…> the intermediaries legislation (IR35) does not, and cannot as a matter of law, apply".

The published FTT judgment decided preliminary questions about the partnership and the existence of direct contracts. It allowed the appeals on the direct-contract issue and did not determine whether the hypothetical engagements would be employment. Paragraph 94 also explains why a partnership is not a general escape from IR35: had the relevant contracts been signed only by the other partner, the intermediary analysis could have been different. The decision's practical lesson is therefore contract-specific, not that partnerships or media engagements are automatically outside the legislation.

Status uncertainty: why contract drafting does not settle classification

The story of Basic Broadcasting Limited, Adrian Chiles's company, shows the other extreme — what happens when a case is fought on the merits. The assessments cover tax years 2012/13 to 2016/17, work for the BBC and ITV, and roughly £1.7 million of tax and contributions. The First-tier Tribunal first heard the case in November 2019; the judge then fell ill with covid and could not finish the decision. A partial rehearing followed in November 2021, and in February 2022 Judge Cannan found for Chiles: the contracts were contracts for services, because he was in business on his own account — many clients, his own agent, commercial risk.

The Upper Tribunal set that aside in June 2024. In HMRC v Basic Broadcasting Limited [2024] UKUT 165 (TCC) Mr Justice Meade and Judge Thomas Scott held that the lower tribunal had wrongly made the question of whether Chiles was "in business on his own account" the centre of the analysis, when the centre should have remained the third stage of Ready Mixed Concrete — the terms of the hypothetical contract. Other clients and entrepreneurial risk are factors weighed inside the test, not a separate test that displaces it. The case went back to the First-tier Tribunal for rehearing on the framework the Court of Appeal set in Atholl House.

HMRC's current guidance for presenters lists Basic Broadcasting among pending appeals. That supports treating the matter as unresolved; it does not establish that no hearing has taken place or that no date has been fixed. The published decisions nevertheless show how a dispute can pass through a first hearing, a partial rehearing and an appellate remittal. Managing the evidence and correspondence over that period is covered in handling HMRC enquiries.

What the case outcomes show

The cases compare the engagements, tax periods and amounts before their separate procedural outcomes.

The amounts describe different periods and cannot alone explain the result. The next table distinguishes the stage and outcome of each cited decision.

Three points help read this case law. First, apparently similar engagements can lead to different outcomes because the whole contractual relationship and its practical context must be assessed.

Kaye Adams (Atholl House Productions Ltd) went the full distance: the Court of Appeal in [2022] EWCA Civ 501 of 26 April 2022 set the analytical framework and remitted the case to the First-tier Tribunal, which in [2024] UKFTT 37 (TC), heard on 10–12 October 2023 and released on 29 November 2023, allowed the appeal against £124,441.58 (£81,150.60 of income tax and £43,290.98 of NICs) for the years ended 5 April 2016 and 2017. Relevant facts included the non-exclusive BBC engagement, work on Loose Women and other projects, and the broader freelance career; none is a standalone safe harbour. With the BBC accounting for 50–70% of gross income and more than two decades of freelancing behind her, the tribunal reached its conclusion after assessing the full relationship.

Paul Hawksbee's case (Kickabout Productions Ltd) had a different combination of facts. The Court of Appeal in [2022] EWCA Civ 502 of 26 April 2022 upheld assessments of £143,126 (£89,758 PAYE and £53,368 NICs) for 2012/13–2014/15. Relevant factors included exclusivity: the contract barred him from presenting on other UK radio stations, gave talkSPORT first call on his services and guaranteed a minimum of 222 programmes a year, and he had presented the Hawksbee and Jacobs show for eighteen years with talkSPORT supplying roughly 90% of his income. Those factors formed part of the overall employment-status assessment; the percentage from one client is not a standalone statutory threshold.

Stuart Barnes (S&L Barnes Ltd) won at the First-tier Tribunal in [2023] UKFTT 42 (TC) of 20 January 2023 and lost at the Upper Tribunal — [2024] UKUT 262 (TCC) of 28 August 2024, which set the first-instance decision aside and dismissed the company's appeal; the quantum was £695,462 for 2013/14–2018/19. The loss came at the third stage of the test: Sky supplied 57.3–61.5% of the company's turnover, held exclusivity over his UK broadcasting services and first call for up to 228 days a year, and that outweighed his newspaper columns and the absence of any guaranteed minimum of appearances.

Second, these particular disputes show that litigation can involve several hearings and appeals over many years; they do not establish a normal duration for all IR35 cases. Third, the tax at stake and the cost of litigation are separate questions, affected by the costs regime at each stage. The adjacent material on athletes is in taxation of sportspeople in the UK and article 17 of the model convention.

Small-client thresholds: when responsibility can return to the PSC

The change that matters in practice is the rise in the small company thresholds. The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, SI 2024/1303 lifted the Companies Act 2006 size criteria: turnover from £10.2m to £15m, balance sheet total from £5.1m to £7.5m, headcount unchanged at 50; a company qualifies on two of the three, for financial years beginning on or after 6 April 2025.

For off-payroll purposes, some private/voluntary-sector clients may become small and responsibility can return to the intermediary under Chapter 8. HMRC's ESM10006A explicitly states that, for companies with a 12-month financial year, the earliest effect is tax year 2027/28. The test uses the relevant financial year whose filing period ended before the tax year; the two-consecutive-year rule and transitional treatment must also be applied. A PSC should therefore verify each client's size for the relevant year rather than assume every client's responsibility changes in 2027.

Where a dispute begins: the compliance check, CEST and challenging an SDS

A compliance check may begin with an informal information request. HMRC manual CH207200 says officers can usually obtain information without formal notices and explains the benefits of an informal approach. It does not make an unsuccessful informal request a universal legal prerequisite to Schedule 36 powers. From the first enquiry about an engagement, preserve contracts and evidence of actual working practices, keep answers accurate and consistent, and distinguish a voluntary request from a formal notice with its own statutory requirements.

CEST: what a saved result is worth

Keep the CEST questions, answers and result together with evidence of actual working practices. HMRC's CEST guidance says it will stand by results where the information remains accurate and follows its guidance. The saved record can show what assessment was made and when, but it does not independently establish reasonable care or prevent a penalty. If the contract or working arrangements change, revisit the answers and result; a claimed substitution right must reflect the arrangement being assessed.

Representations against an SDS: the client's 45 days

The worker and deemed employer can make representations about an SDS under section 61T ITEPA 2003, before the final chain payment for the engagement. The client has 45 days from receipt to confirm its conclusion with reasons or provide a new SDS with a different conclusion and effective date, withdrawing the earlier statement as required. If it fails to comply, the client takes the relevant fee-payer obligations from the end of that period until it complies, subject to the statutory exceptions. Keep a dated record of the representations and response. The SDS process and a later appeal against a tax/NIC decision are separate; remedies for closed periods depend on the actual decision and tax position. See handling HMRC enquiries.

Running the dispute: deadlines, instances and cost

Check both the PAYE determinations and any separate NIC decisions. A regulation 80 determination follows the assessment appeal machinery: give HMRC written grounds within the 30-day period under section 31A TMA 1970. A section 8 NIC decision has a separate appeal right under section 11 of the 1999 Act; HMRC confirms the usual 30-day deadline. Identify every decision and period being challenged rather than assume that a PAYE appeal covers NICs. A late appeal needs acceptance or permission under the applicable rules; it is not an automatic extension.

For income-tax assessments, section 34 TMA 1970 gives the ordinary four-year limit after the tax year. Section 36 extends it to six years where a loss was brought about carelessly and twenty years for deliberate conduct and certain other statutory grounds. HMRC alleging carelessness is not itself proof that the extended limit applies. NIC recovery has separate limitation rules, so do not use the tax assessment window as a universal limit for both liabilities.

After an appeal to HMRC, a statutory review and notification to the First-tier Tribunal are distinct routes; follow the response letter and deadlines in HMRC's appeal guidance. Further appeals concern errors of law and require permission. Kickabout reached the Court of Appeal; Atholl House reached it and returned to the FTT; Basic Broadcasting was remitted by the Upper Tribunal and remains listed as pending in HMRC's case register. These histories show that a dispute can involve several hearings. The first tax year under assessment is not the date when the enquiry or litigation began.

Costs: the rules change between tribunals

At the First-tier Tribunal, each side normally bears its own costs. Rule 10 provides exceptions including wasted costs, unreasonable conduct, and a Complex case where the taxpayer has not opted out within 28 days of notification of allocation. Thus neither recovery on winning nor immunity on losing is unconditional. The Upper Tribunal can award costs in tax appeals. In the Court of Appeal, CPR 44.2 makes costs discretionary: the general rule is that the unsuccessful party pays, but a different order is possible. Budget each stage separately; the assessment amount alone does not establish the defence cost.

What happens when the owner moves

A move by the owner and a change in company residence are separate questions. Section 14 CTA 2009 generally treats a UK-incorporated company as UK resident, subject to the treaty non-resident rule in section 18. Moving the director does not by itself end that residence. The destination country may also treat the company as resident under its own law, depending on the management and other relevant facts; dual residence must be tested rather than assumed.

Treaty residence

For a dual-resident company, section 18 CTA 2009 follows the applicable treaty's corporate residence tie-breaker. HMRC INTM120070 distinguishes competent-authority agreement from treaties that retain an objective test, commonly the place of effective management. Under the former, HMRC cannot unilaterally award treaty non-residence; the latter can apply without agreement, although a dispute between authorities may require mutual agreement. The UK–UAE convention, signed on 12 April 2016 and in force from 25 December 2016, uses competent-authority agreement in Article 4(4). Check eligibility as a resident under Article 4(1) as well as the tie-breaker; a director's move alone establishes neither.

UK permanent establishment

Even where a company becomes treaty non-resident, its UK activities can create a permanent establishment. Section 1141 CTA 2010 and HMRC's explanation address a fixed place through which the company's business is carried on and an agent who meets the statutory authority conditions. A studio, office or producer is relevant evidence, not an automatic conclusion: assess the company's actual use of the place, the agent's powers, any treaty protection and the preparatory-or-auxiliary exception. Core production or broadcasting work should not simply be labelled auxiliary. Possible operating models include moving functions or retaining a properly documented UK operation; a separate local company does not by itself eliminate the foreign company's PE risk. See economic substance and holding structures.

CFC attribution

CFC analysis is jurisdiction-specific and separate from the owner's residence and the company's PE position. It is not a rule that every relocated company's profit automatically returns to its individual owner: the UK CFC charge is restricted to qualifying UK-resident companies. Other countries use different control, income, exemption and reporting tests. Presenting fees, image royalties and intra-group licences therefore need analysis under the relevant country's rules; describing income as active or passive is not enough to determine attribution. See CFC rules, US CFC rules, image rights and the creator's holding company.

UAE tax treatment

In the UAE, the result depends on the entity, customer, activity and type of income. A Qualifying Free Zone Person is taxed at 0% on Qualifying Income and 9% on other taxable income, without the ordinary AED 375,000 band for that latter income. Transactions with a qualifying Free Zone customer that is the beneficial recipient can qualify even when the service is not on the Qualifying Activities list, subject to exclusions and the other conditions. Income from marketing-related IP, such as trademarks, is outside the special Qualifying IP category; image licensing does not become qualifying merely because it is booked in a free zone.

Check Cabinet Decision 100/2023, the current Ministerial Decision 229/2025 and the entity's QFZP conditions before modelling 0% or 9%. A free-zone entity outside QFZP status generally follows the ordinary corporate-tax bands. The qualifying-activity, de minimis and status-loss mechanics are covered in the UAE hub and UAE tax residence.

Beyond the UK: how six other systems test a personal company

Other countries distinguish employment, independent business and tax attribution using different rules. Client concentration can be relevant without deciding employment status; some regimes govern tax attribution rather than the existence of an employment contract. The comparison below is a starting point for identifying the applicable local test.

The consequences differ because these systems do not all test the same tax or employment question.

The German, Spanish and French rows follow § 7a SGB IV, Ley 20/2007 and L7121-3, including the separate EU/EEA temporary-service exception. The Netherlands resumed enforcement on 1 January 2025. Current tax-authority guidance says there were no fines for 2025; in 2026 culpability-based fines can apply, while default fines remain suspended. Corrections normally reach back to 1 January 2025, with exceptions for bad faith or failure to follow earlier instructions. Australia's Division 87 separates the 80% restriction from the results test: that test requires at least 75% of PSI to meet the result, necessary tools/equipment and defect-rectification conditions. The ATO self-assessment guide is the operational companion.

Three practical distinctions follow. France's artist presumption depends on the statutory activity conditions, not merely possession of a company or trade-register entry; the EU/EEA exception must also be considered. Spain's 75% TRADE threshold and Australia's 80% PSI restriction serve different purposes and cannot be treated as general employment safe harbours. Germany permits a prospective status decision under § 7a(4a), but is not the only place with a route to advance clarification: the Dutch authority offers prior consultation if practice matches the described facts, and Australia's statute permits a PSB determination based on expected conditions. California Labor Code § 2775(b) requires the hiring entity to prove all three ABC conditions—freedom from control, work outside its usual business, and an independently established trade—subject to express exceptions and other applicable law. In Australia, Income Tax Assessment Act 1997 §§ 84-10, 87-15 and 87-18 says PSI treatment does not itself make an individual an employee; the 80% concentration rule restricts the other self-assessment tests while leaving the results test and a PSB determination as distinct routes. The base-by-base tax picture is in the creators hub.

Practical checkpoints

Start with the applicable chapter and the full working relationship, then calculate tax and NICs using the rules for that chapter. Lineker concerns direct contracts in a particular partnership; Adams, Hawksbee and Barnes illustrate different whole-picture assessments, not single-factor safe harbours. Basic Broadcasting remains listed as pending by HMRC.

Review client size each relevant tax year: the higher thresholds can shift responsibility to a PSC, with the first usual effect in 2027/28 for a twelve-month financial year, subject to the detailed transition. For a qualifying Chapter 10 assessment, calculate eligible set-off separately from employer NICs, penalties and interest.

Protect procedural deadlines: normally 30 days for each tax/NIC decision, 45 days for an SDS response, and 28 days to opt out of the Complex-case costs regime. A move by the owner requires separate company-residence, treaty, permanent-establishment and destination-tax analysis; neither non-residence nor a UAE 0% rate follows automatically.