Payments to personal service companies: Finance Bill update

Since 6 April 2017, special rules have applied where an individual’s services are provided via an intermediary to an organisation in the public sector.  Typically, this will be “contractor” type services provided via a personal service company (“PSC”).  We commented in May on the government’s intention to extend those rules to services provided to clients in the private sector.

The relevant draft legislation has now been published (on 11 July 2019) and is due to come into effect from 6 April 2020. This note summarises the proposals.

As well as extending the rules to the private sector, the draft legislation makes two changes to the way in which they operate, by introducing the concepts of the “Status Determination Statement” and the “Client-Led Disagreement Process”. Here’s our explanation of both these terms.

Status Determination Statement

The “end user” who actually uses the services is required to decide whether a particular engagement does or does not fall within the scope of the rules – that is, whether, if the contract had been made direct between the end user and the individual, it would have been a contract of employment.

The decision and the reasons for arriving at it must be set out in a Status Determination Statement (“SDS”), a copy of which must be given to the individual worker and to the person with whom the end user contracts.  This will usually be the agency, though there may sometimes be multiple parties in the chain between the PSC and the end user.  Where this is so, each person in the chain passes the SDS down the chain until it reaches the person who actually pays the PSC (the “fee-payer”).

If the SDS states that the notional direct contract would have been one of employment, the fee-payer is required to deduct tax and NIC from the payment (exclusive of any VAT) and pay it over to HMRC.

Client-led disagreement process

If either the fee-payer or the individual whose services are being provided via the PSC disagrees with the decision of the end user, they can invoke what is described as the “client-led disagreement process”.

Under this, the end user may be asked to reconsider the decision and to notify the results of the reconsideration (either confirming or withdrawing the decision that the rules apply) within 45 days.  There is, however, no independent appeal process.

Other points of the rules

  • The new rules will apply to all payments made after 5 April 2020, regardless of the date on which the contract commenced or the date on which the work was done.
  • If the contractor’s assignment is with a small business (broadly as defined by the Companies Act with appropriate modifications for non-corporate businesses), then the new rules are not relevant.  Instead the current “IR35” rules continue to apply to the PSC.  In particular, the fee-payer will not make any deduction on account of tax or NIC.
  • The end user has to show that they have exercised ‘reasonable care’ when they make a status decision.  If they fail to do so, the end user rather than the fee-payer may become liable to account for the tax that should have been deducted.
  • Where these rules apply, the PSC is not able to claim the current deduction of 5% of turnover to cover the company running costs.


Shoehorning into the PAYE system a payment made to a company (often VAT registered) through the purchase ledger can itself present accounting complexities.  The time and trouble that end users will need to take in making accurate status determinations is an added burden.  The absence of any independent appeal process for PSCs or fee-payers against the end user’s determination is problematic.

We don’t see much to be thankful for in these new rules.  But we should be grateful for small mercies: at least end users that are small businesses escape these rules.

To find out more about how we can help, take a look at our contractors and freelancers page or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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