Contractors' Questions: Can agencies block PSCs from public contracts?

Contractor’s Question: I’m contracting for the NHS via a staffing agency. My colleagues claim it makes more sense to have my own ‘Ltd’ company than use an umbrella company.

But the agency says PSCs are no longer allowed. HMRC’s IR35 helpline tells me this isn't true – that I don’t have to be an umbrella. Can an independent expert please clarify?

Expert’s Answer: In some circumstances, it can make more sense to contract using your own limited company rather than via an umbrella.

Working via an umbrella, you will be an employee of the umbrella company and therefore tax and NIC will be deducted from all your wages. Plus, you will receive all the usual rights associated with employment.

Working via your own company means your company is providing a service for which it will invoice the client, and then as director you will be free to determine your own remuneration strategy -- usually low salary/high dividends -- subject to your decision regarding the IR35 status of your engagements.

However, since April 6th 2017, where a contractor provides services to a public authority via an intermediary as defined in the legislation (your own company in this scenario), it is the public authority’s responsibility to determine the engagement’s IR35 status and, if deemed caught by IR35, payments to your company must be net of tax and NI. This removes the contractor from the decision-making process entirely. The deductions do not mean you become an employee of the client or agency, so although you are paid net you will not be entitled to any employment rights.

As a result of the new rules, agencies are now reluctant to deal with limited company contractors working for clients which have deemed their engagements caught by IR35. We are seeing an increasing number of contractors being encouraged to use umbrella companies as a way of easing the administrative burden on the agency.

There is nothing which specifically prohibits working as a limited company for any public authority. The main issue will be finding an agency that is willing to engage with your limited company given that it is the agency which is responsible for making the appropriate deductions.

The expert was Rebecca Walker, an IR35 specialist status consultant at Abbey Tax.

Editor’s Note: Related –

Contractors’ Questions: What to make of the NHS’s blanket IR35 decision?

Public sector IR35 reform: one week in

Contractors’ Questions: Do IR35 reforms cover indirect rail project suppliers?