The Personal Service Company and IR35

The personal service company and IR35: what this page covers

A personal service company — a PSC — is the standard wrapper for anyone who sells their own labour through a legal entity: an IT contractor, a consultant, an engineer, a doctor, a sportsperson, a presenter, a commentator, a blogger. Client and brand fees run through it, so do image licence payments and platform revenue; profit stays inside, and the owner takes dividends instead of a salary. The structure saves social contributions and defers personal tax — and that is exactly why it is attacked.

The UK intermediaries rules, IR35, are the most developed answer anywhere to the question of when a personal company stops being real: twenty-five years of practice, two chapters of ITEPA 2003 and a body of decisions in which outcomes diverge on facts that look alike. This page is the canonical treatment of IR35 and the PSC: how both chapters work, the substantive test, the offset for tax already paid, the interface with an HMRC check, the deadlines and the cost of a dispute. The cases come from media because that is where HMRC ran its test litigation, but the rules apply identically to a consultant, an IT contractor and an athlete — the sector overlays sit in taxation of sportspeople in the UK and the creator's holding company.

There are two risks here, and they have nothing to do with each other. The first is reclassification of the relationship with the client: the revenue authority says the company is a façade over what is really an employment contract, and assesses tax as though the person had been on the payroll. 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 UK intermediaries rules sit in Part 2 of the Income Tax (Earnings and Pensions) Act 2003 and split into two chapters. Chapter 8 is the original IR35 of 2000: the personal company decides its own status, and if it decides wrongly it takes the assessment, the interest and the penalty. Chapter 10 is the off-payroll working regime: the client determines status, issues a status determination statement and, if it gets that wrong, answers for the unpaid PAYE and National Insurance contributions. Chapter 10 has applied in the public sector since 6 April 2017 and to medium and large private-sector clients since 6 April 2021; Chapter 8 survives wherever the client is a small company or an overseas entity with no UK presence. HMRC's own guidance states the fork plainly: with a small client "the worker's intermediary is responsible for deciding the worker's employment status"; with a medium or large one the client is.

The substantive test is identical in both chapters. You construct a hypothetical contract directly between worker and client, bypassing the company, and ask whether it would have been a contract of employment. The frame is the three-stage test from Ready Mixed Concrete (1968): mutuality of obligation, the client's control, and whether the remaining terms are consistent with employment. HMRC's self-assessment tool, CEST, has no legal force and in contested cases routinely fails on contact with the facts.

One technical detail moves the size of a dispute more than it looks. Since 6 April 2024 an offset mechanism applies: on a Chapter 10 reclassification, the amount charged to the deemed employer is reduced by tax already paid by the personal company and by the worker — corporation tax, dividend tax, contributions. Before that date HMRC computed gross, and the headline "million-pound" figures in the presenter cases are gross demands, not the real cost to the Exchequer.

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

The mechanism was introduced by The Income Tax (Pay As You Earn) (Amendment) (No. 2) Regulations 2024, SI 2024/355: regulations 72GA to 72GC were inserted into the PAYE Regulations 2003, setting out the conditions for the offset, the procedure for issuing a direction notice and the right to appeal against it. The offset applies to a deemed employer's liabilities for income tax and primary NICs assessed on or after 6 April 2024, and it reaches deemed payments made from 6 April 2017 onwards. No claim is needed, but the taxpayer has to check the arithmetic: HMRC computes on an estimated basis, from return data and on assumptions and best judgement, because it does not hold a full picture of the worker's and the intermediary's own tax.

Five items are deducted.

• 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 and the apprenticeship levy. Only the income tax and primary NIC part of the demand is reduced: the deemed employer pays its own secondary NICs in full.

A worked example on a simplified model (2024/25 rates, one client, a fee of £150,000 for the year, no salary drawn, all profit distributed as dividends). The Chapter 10 demand: income tax on the deemed payment £53,703, primary NICs £5,011, secondary NICs £19,444 — £78,158 gross. Already paid: corporation tax £36,000 (25% after marginal relief) and dividend tax of £27,126 on the £114,000 distributed — £63,126 in total. The offset runs against the £58,714 of income tax and primary NICs and extinguishes that part; the £4,412 excess is neither repaid nor carried anywhere. What remains payable is £19,444 of secondary NICs — a quarter of the opening figure.

Structural perimeter: when the intermediary ceases to exist

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, £4.9 million in total.

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".

HMRC appealed, but the case never reached the Upper Tribunal: at the end of 2024 the dispute was settled and the appeal withdrawn on undisclosed terms. That matters for the case's value as law. The win stands as a first-instance decision that binds nobody, and it was won on a technical rather than a substantive footing. The tribunal reached the employment test second — and on most of the contracts it was leaning away from the taxpayer.

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) Judge Mead 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.

As at mid-2026 the rehearing has not happened: no hearing date, no new decision, and the £1.7 million of assessments still standing. A dispute that began with an enquiry in 2012 has no outcome in its fourteenth year — and that, not the amount, is the lesson. How to run a relationship with the revenue over that kind of distance is covered in handling HMRC enquiries.

Product rule: design the operating model before choosing a PSC

Three things stand out. First, outcomes diverge on facts that look alike, and they diverge on one or two contractual details.

Kay 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. One fact tipped it: the BBC engagement was non-exclusive, and alongside the radio show she presented Loose Women and other projects that the broadcaster never restricted — with the BBC accounting for 50–70% of gross income and more than two decades of freelancing behind her, that reads as a business on her own account rather than employment.

Paul Hawksbee (Kickabout Productions Ltd) lacked precisely that. 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. The distinguishing fact is 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. The portfolio that saved Adams simply did not exist.

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 57–61% 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, distance is measured in instances rather than months — three or four rounds is normal for a case of middling complexity. Third, the individual amounts bear no relation to the cost of running those rounds, and the tribunals' costs regime sharpens the asymmetry. The adjacent material on athletes is in taxation of sportspeople in the UK and article 17 of the model convention.

Small-client thresholds: from 2027 the liability returns to the creator

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 that means a slice of clients now treated as medium will become small, and the duty to determine status will move back to the worker's personal company — back into Chapter 8. The size test looks at the two preceding financial years, so for most clients the effect will not bite before tax year 2027/28. That date follows from the size test itself: HMRC's off-payroll guidance (as updated 26 February 2026) names no date for the transfer of responsibility. For a creator this is a deterioration, not an improvement: while a large broadcaster made the call, the risk of getting it wrong was the broadcaster's; once the threshold moves, the risk comes home to the author's company.

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

Before any assessment or appeal there is a stage at which the outcome is usually settled. There is no formal "opening of an enquiry" for PAYE equivalent to an enquiry into a company return: HMRC opens with an information letter, and its own manual CH207200 treats the informal request as the standard first step, with the formal Schedule 36 Finance Act 2008 powers engaged only where information is not given voluntarily. The working rule is that correspondence becomes a check at the moment of the first question about the status of a specific engagement, not at the moment a formal notice lands: from that letter onwards every answer joins the evidence base and will be set against whatever the client says about the same working arrangements.

CEST: what a saved result is worth

A CEST result obtained before the check is not an indulgence, but it is an asset. HMRC undertakes to accept the tool's outcome "as long as the information you give remains accurate and is in accordance with our guidance", and expressly invites users to save the answers and the result and to use it as a status determination statement. The value lies in the dating: a saved file of questions and answers shows that status was determined before, not after, the approach, and it goes straight to the carelessness point on which both the penalty and the six-year assessing window turn. The other side of the same condition is that the answers are tested against the facts, and a gap between "there is a right of substitution" on the questionnaire and actual practice destroys the result entirely.

Representations against an SDS: the client's 45 days

Where it is the client that got it wrong, a separate mechanism applies. Section 61T ITEPA 2003 gives the worker and the deemed employer the right to make representations against a status determination statement, and imposes on the client a duty, within 45 days beginning with the date it receives the representations, either to confirm the original conclusion with reasons or to issue a new SDS with a different conclusion and effective date. The sanction for silence is severe: if the 45 days pass, the fee-payer obligations under sections 61N(3) and (4) transfer to the client itself. The window is finite — representations must be made before the final contractual payment; once the chain has closed the mechanism no longer works and only an ordinary overpayment claim remains. How to run the correspondence, and what to do about periods already closed, is in handling HMRC enquiries.

Running the dispute: deadlines, instances and cost

An assessment arrives as two documents, and they are appealed in parallel. Income tax is charged by a determination under regulation 80 of the PAYE Regulations 2003: regulation 80(5) treats it as if it were an assessment and subjects it to Parts 4 and 5 of the Taxes Management Act 1970, so written notice of appeal specifying the grounds goes to HMRC within 30 days under section 31A TMA 1970. Contributions come by way of a separate decision under section 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999; the right of appeal is given by section 11 of the same Act, on the same 30-day footing. Missing the deadline is not fatal, but relief is at the judge's discretion; and both documents must be appealed — appealing only the determinations leaves the NICs standing, and across the case law that is a third to a half of the total.

How far back the assessment can reach is set by sections 34 and 36 TMA 1970: the ordinary limit is 4 years after the end of the tax year, rising to 6 years where the loss was brought about carelessly and 20 where it was deliberate. That is why the presenter cases span five and six years of assessments: HMRC pleads carelessness and gets the six-year window instead of the four-year one.

Once the appeal is with HMRC there is a fork: a statutory review, or straight to the First-tier Tribunal (Tax Chamber). Beyond that, the Upper Tribunal on a point of law and with permission, then the Court of Appeal with the heightened second-appeals threshold. The case law shows the real distance: Kickabout ran FTT to UT to Court of Appeal and finished ten years after the first year in dispute, Atholl House ran FTT to UT to Court of Appeal and back to the FTT over eight years, and Basic Broadcasting has no outcome in its fourteenth year.

Costs: why winning at the FTT does not pay

The economics are set by the costs regime, and it changes from instance to instance. The First-tier Tribunal is a no-costs jurisdiction: rule 10 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 permits a costs order only for unreasonable conduct, for wasted costs against a representative, or where the case has been allocated as Complex and the taxpayer has not sent a written request to opt out of the costs regime within 28 days of being notified of the allocation. The point cuts both ways: winning at the FTT you do not recover your costs, but losing you do not pay HMRC's. In the Upper Tribunal and the Court of Appeal the rule reverses — costs follow the event, and the loser pays the other side. Hence the asymmetry visible across the case law: a dispute over £124,000 (Atholl House) ran through four instances and eight years.

What happens when the owner moves

The second half of the problem begins when the owner leaves and the company stays. The British side is uncompromising: under section 14 of the Corporation Tax Act 2009, a company incorporated in the United Kingdom is UK resident "for the purposes of the Corporation Tax Acts" — no qualification about where it is managed. A sole director boarding a plane does not change that, while the new country applies its own place-of-effective-management test to the same company, so a second residence arises automatically.

The only way out of UK residence is the treaty tie-breaker — the treaty non-residence rule in section 18 CTA 2009. After the MLI the standard tie-breaker was replaced by determination by the competent authorities, and HMRC's manual INTM120070 states plainly that with such a tie-breaker section 18 cannot be applied unilaterally: a mutual agreement procedure is required, it runs in years, and throughout it the company remains a UK taxpayer. Where a treaty has kept the objective place of effective management test, it still applies without a MAP. The UK–UAE convention was signed on 12 April 2016 and entered into force on 25 December 2016, but it offers no quick exit.

Even with residence successfully moved, whatever physically stays behind keeps a UK taxable presence alive. Section 1141 CTA 2010 describes a permanent establishment through two limbs: a fixed place of business (a leased studio, an office, an edit suite) and a dependent agent (a manager or producer who habitually concludes contracts on the company's behalf); the preparatory and auxiliary carve-out does not extend to a production or broadcasting process. There are two workable answers: move the functions after the owner, or hive the remaining infrastructure into a local entity on an arm's-length contract with transfer pricing documentation. How to allocate functions between countries, and how to evidence presence, is in economic substance and holding structures.

The CFC rules close off the obvious workaround: until the previous personal tax residence has been broken cleanly, the relocated company's profit is pulled back to the owner, with penalties for unfiled participation notices on top. For a PSC the distinction is simple: fees for presenting, filming and appearing are active income that most regimes do not attribute, while image royalties and intra-group licence payments are textbook passive income that they do. Hence the standard mistake of moving precisely the image rights into the low-tax jurisdiction. The attribution mechanics are in the CFC material and the US CFC rules; the rights-by-rights breakdown is in image rights and the creator's holding company.

The tax arithmetic on the receiving side is usually more modest than expected. In the UAE, content, advertising and image licensing fall outside the free zone's zero rate and the 9% rate applies — the canonical treatment of the Emirati position, including the qualifying activities list, the de minimis rule and the loss of QFZP status, is in the UAE hub and UAE tax residence.

Questions and answers