Tax loss, business and personal service companies

Reform of the taxation of personal service companies was top of everyone’s list of tips for the Autumn Statement. Reform was widely briefed. But “not yet” was the message. Although it remains on the cards it was not delivered by the Autumn Statement.

Most of what follows I wrote on the morning before the Autumn Statement. I had intended it to be a piece congratulating David Gauke, Financial Secretary to the Treasury, on delivering a much needed policy reform. Obviously I can’t publish that piece. But instead of adding ‘wasted my morning’ to (the bottom of) my (long) list of complaints about the Conservative Government I offer it, mildly revised, as an argument for the reform we need.


To understand why personal service companies are used you need to start with two important facts about the tax system and one about the nature of the employment relationship.

Tax Fact One

First, liability to operate PAYE – to deduct income tax and NICs from payments made to employees – rests with the employer. If the employer (call it ‘XCo’) doesn’t operate PAYE properly, XCo (almost always) carries the can. Even if the consequence of that failure is that the employee (MrY) is better off.

This has the important consequence that every time XCo engages MrY on a ‘freelance’ or self-employed basis XCo takes on risk that HMRC will, later, say that MrY was an employee, leaving XCo with a substantial bill for failing to operate PAYE.

Tax Fact Two

Second, there are lots of advantages for both XCo and MrY to MrY being self-employed.

Above a certain threshold (currently, annualised, £8,112), all income paid by XCo to an employed MrY attracts a 13.8% surcharge. Payments made to a self-employed MrY don’t attract that surcharge.

MrY is also – in cash terms at least – better off. On earnings of between £8,060 and £42,380 an employed MrY will pay NICs of 12% but a self-employed MrY will pay 9%. A self-employed MrY also enjoys a cashflow advantage – and a more generous regime for deducting his expenses.

And the advantages for XCo are not merely cash advantages. It gets to engage MrY with fewer (expensive) employment rights.

XCos are often prepared to share with MrYs some of their advantages in the form of higher pay to encourage them to agree to ‘self-employment’. Sometimes, properly understood, these arrangements are abusive and involve MrY undervaluing his employment law rights – and sometimes they don’t.  Indeed, there are many cases where (for this and other reasons) MrY will not work for XCo unless he is engaged on a self-employed basis. There is no hard and fast rule.

Employment Fact

The one fact about employment is this.

If MrY has a direct relationship with XCo, he doesn’t get to choose whether he’s an employee or not. Whether he is or not depends on the proper legal characterisation of what he does and what his contract with XCo says. But if MrY is engaged through a personal service company (PSC) to supply his services to XCo he will almost always be self-employed. So XCo and MrY can transform what would be a relationship of employment into a relationship of self-employment by interposing a PSC between them.


The reasons for these tax differences – if there are reasons, and there might be – are poorly understood. I have explored them in some detail here. Many argue forcefully that they should be eradicated. For what it’s worth, for my own part I am not, or not yet, in that camp.

The reasons for the employment differences are also coming under some scrutiny: see Jeremy Corbyn’s speech at Party Conference here and my response here.


When in 1999 the then Government announced the introduction of IR35 its stated objective was to tackle the use by both engagers and workers of personal service companies to arbitrage tax differences: my Tax Fact Two above.

It sought to achieve its objective by, in effect, ignoring the interposition of a PSC between XCo and MrY. It asked whether, if XCo employed MrY directly he would be an employee or self-employed?

If the answer was “employed” XCo would have an obligation to operate PAYE (see Tax Fact One). And XCo would bear the risk of getting it wrong. At least, that was what was originally proposed.

But XCos didn’t like that risk and they lobbied Government furiously. And the then Government caved and put the liability on the PSC instead.

And that turned out to be a fatal error.

Because, instead of looking at a (relatively small) number of XCos, an overstretched and under-resourced HMRC had to undertake extensive and complex investigations into a (relatively large: tens or hundreds of thousands) number of PSCs.

And if they found a relationship that, ignoring the interposition of the PSC, looked like employment they had to challenge it in the courts.

And each of those cases would have no formal read-across to other PSCs: so HMRC had to litigate them case by case.

And very often, even when HMRC won, it couldn’t collect the tax. The PSC would simply wind itself up and MrY would start a new one. So common was this practice that it acquired a name: ‘Phoenixism’.

Meanwhile, XCo carried merrily on. It continued to have an incentive to engage MrY as self-employed. And so long as a PSC was involved – which the XCo insisted on – XCo enjoyed the benefit of the arrangement and took none of the risk.

And, so far as MrY was concerned, he too could carry on enjoying his share of the rewards. There was only a modest risk of HMRC enquiring – and if it did only a modest risk of any consequences.


The solution to this is remarkably simple. We need to revert to plan A.

The liability needs to rest on XCo. XCo will then show an interest in whether MrY really is an employee. And if he is, XCo will operate PAYE – and MrY will gain employment rights. As the system stands it fails to incentivise anyone to be interested in whether the right tax is paid. It really is as simple as that.


We are talking very substantial sums of money.

The best recent estimates suggest a population of 200,000 personal service companies (see paras 18 and 19 here) used particularly by workers engaged in the oil and gas and IT sectors.

If you assumed (a) average weekly earnings of £800 for those 200,000 and (b) all workers were self-employed, the difference between between Class 1 NICs (paid by the employed) and Class 2 and 4 NICs (paid by the self-employed) would be in the order of  £1.2bn.

HMRC have provided an estimate of the difference between all Class 1 NICs (paid by the employed) and Class 2 and 4 NICs (paid by the self-employed) of £2.56bn.

And these figures are before the cashflow advantage and the benefit of the more generous deductibility regime.

Against that the population of MrYs who would be taxed under PAYE if engaged directly by XCos would be much smaller than 200,000. It may well be that a figure of around £500m would be of the right order.

However, it should also be noted that the creation of a new £5,000 tax free band for dividends could open up further and much more substantial opportunities for avoidance which exceed this £500m in scale.

24 thoughts on “Tax loss, business and personal service companies

  1. I think your narrative is not quite right. The individual will normally be a director of the PSC and so an employee for tax purposes. A such, their earnings from the PSC will be taxed as employment income and employee/er NIC will be due in the normal way. They will not be self-employed, as it is normally known, for tax purposes.

    The key difference then is that the individual takes out enough earnings from their PSC to cover their personal allowance and perhaps a little bit more, employs their spouse partner for the same reason, takes advantage of the employment allowance and pays some out as dividends. The PSC can also buy them goodies that a normal employee would buy themselves (phone, super-duper laptop/gaming rig, season ticket) and these would be deductible. If they don’t need all the cash now then the PSC accumulates it and after a while they decide to liquidate and claim entrepreneurs’ relief.

    Most ignore IR35 – other than for getting their contracts certified as being outside it. Getting caught is just a risk of doing business.

    Then there are those people who don’t realise what “too good to be true” means. Just google “contractor 90%” (with ad block disabled), click and put in a £1,000 per day, and see the low tax rates. Looking at one, that will save you £67,358..28 per year. Try complaining to the ASA about that and they say its fine because it has an opinion from one of your colleagues.

    The other thing is to be prepared for lots of comments back we take more risk (which is what the day rate is for, not the tax system) and the death of contracting. All the while ignoring that net-net (and without a spouse) someone getting pay/dividends is about £600 per month better off than an equivalent employee on £50,000 per year.

    Roil on these changes.

  2. My fault. It’s just you mention ‘self-employed’ fourteen times and class 4 NIC but I’ve never seen someone who contracts through their own PSC being self-employed (in the tax sense) or paying class 4 NIC. I probably lead a sheltered life.

  3. It’s usually barristers who lead a sheltered life. I’m sure the same is true here. My detailed knowledge of this area is of a slightly different sector to the OMB sector. But I think we’re exaggerating the differences between us which go purely to scale.

    If the owner of the PSC is a director drawing £10k of employment earnings and taking the remainder as dividends there is an even greater NICs loss to the Exchequer than I have identified. And there’s an income tax loss too. My ‘solution’ – of putting the IR35 risk on XCo – staunches both of those losses (at least where MrY is ‘really’ an employee).

    I assume we agree about that?

  4. We agree absolutely on the issue. The hidden subsidy to the self-employed should go and one way of doing that would be to increase the marginal class 4 NIC rate from 2% to 9%. The salaried members rules were another, more limited, way of achieving this. But changing the class 4 NIC rate will have no impact whatsoever on people who use PSCs.

    I don’t know if it is possible to change the formatting of the comments on your blog as replies to replies tend to look rather silly when viewed on chrome.

  5. This makes sense to me. If the client company had the PAYE risk then you would see many fewer contractor companies, and certainly even fewer offshore intermediaries (since the client company would need to recover the PAYE in the event of an HMRC enquiry and would therefore want a UK based intermediary to go after).

  6. I have a huge interest in this area, but I would much prefer to tackle this from the angle of what the economy needs from these workers and then design some tax rules that will work. At the moment we are trying to force a 21st century labour model into some largely 19th century tax rules.

    So what does our economy need from these particular individuals? I write with IT contractors in mind, but this applies to lots of other specialised skills, such as engineers etc. It needs them to be flexible, willing to travel and work effectively as part of the team. It needs them to be available for a finite period, but for some companies (end users is often how they are termed) this might be a long period of time, but importantly the end user gets to decide periodically whether they still require those services. I think that is a fair summary of the needs of the economy, but happy for others to argue with me. I might also add that the potentially temporary nature of the work and the high skill level (meaning these are expensive people) leads end users to conclude that they don’t want to employ these people in the normal sense. I do think that is a financial consideration, but for some very large users of contractors (collectively Government Departments are probably the highest users) it is also a constraint limiting headcount. What end users need is actually probably nearer to self employed people than to employees, but these are 19th century concepts.

    What might be an appropriate way of taxing the rewards provided to the contractor? I firmly believe that using dividend extraction with low salary tips the balance far too far in favour of the contractor. Even are the much wailed about dividend changes a contractor making £50,000 a year will still only be paying 20.6% average rate of tax in 2016/17 and less than 20% by the time the CT rate drops to 18%. Add to this the distortion of other tax measures such as the taper of personal allowances at £100,000 income level because the income of the company is taxed to CT, and the persistence of these workers as limited companies seems to me to be then problem. Why are they working as limited companies? You gave the answer – it is to protect the end user from both the financial and employment rights consequences of the worker being classified as an employee.

    So, might we endeavour to design a status – with the workers and end users which reflects how the economy needs this relationship to work – and then tax them as self employed? The lack of employment rights is compensated through the rate of pay from the end user, but the worker has more flexibility, which is actually what we need from them.

    I think I have set out a design approach – that is a long way from a solution, but a word of warning to any contractors reading this. You have had it too good for too long. It was good while it lasted, but the end is nigh!

  7. I think that’s absolutely right. And although we don’t yet have much detail the position will get better for the contractor – perhaps an awful lot better for the contractor – once the £5k dividend exemption comes in. I should just note that the IR35 point I’m pushing doesn’t automatically treat contractors engaged through PSCs as employees. It just creates a need for someone to take an interest in whether really they’re employees.

  8. Tax facts one and two suggest the only reason why anyone works as a freelancer, or engages a freelancer, is tax. It ignores the more obvious, straight forward business incentive that when XCo needs to get something done, the best way to achieve it is very often to find a supplier with the right expertise and pay them to do it. Their behaviour is commercially driven and nobody in this arrangement is willfully avoiding tax. They can only comply with the tax regime in front of them.

    At IPSE we believe the tax regime is inadequate. It’s an outdated system based on the old fashioned model of employers and employees. It hasn’t moved with the times. Almost 15% of the labour market is now ‘self-employed’ (in the widest sense of the term). That percentage share is set to grow further. The tax system needs radical reform to cope with this shift.

    The solution proposed here is to put the liability onto the engager, or ‘would be employer’. The problem with that is it will cause a huge administrative burden and potential tax liability for businesses that after all, just want to pay someone with the right expertise to get something done. It will encourage businesses to employee that someone, when there is no business case for doing so.

    Freelancers perform a unique economic function. They enable their clients to be more innovative, to expand into new areas and in so doing can pave the way for new employments to be created in their wake. To quote Professor Andrew Burke, Dean of Trinity Business School in Dublin, “Freelancers help business to manage risk, innovate and to undertake changes necessary to grow. Public policy needs to reflect this and have a fresh perspective of the 21st century role of freelancers often as the creators of full time employment.”

    Despite the compelling case for actively encouraging freelancing, there are those that view it with grave suspicion. They can only see ‘disguised employment’ rather than very small businesses helping other businesses (and public sector bodies) meet their targets and expand into new areas. They want these businesses to be converted into employees because this would make it easier to tax them. It’s completely the wrong way of looking at the issue.

    Instead of saying ‘we have a tax system and we want the labour market to fit into it’ we need to flip it on its head and say ‘we have a diverse labour market which is powering our businesses, our public sector and our economy – let’s create a sophisticated tax system that’s fit for purpose.’

    Ahead of the Autumn Statement, IPSE proposed a new type of corporate form which recognises the unique characteristics of freelance businesses. The Freelancer Limited Company, or FLC, is an opt-in structure tailored specifically for freelancers, contractors and independent professionals. It will protect revenue while at the same time provide a benign environment for freelancing to flourish.

    We hope the Government will consider more radical ideas such as the FLC rather than reverting to old fashioned anti-avoidance measures designed around our old fashioned tax system. We have to take into account the companies and public sector bodies which have come to rely on the expertise of freelancers. They don’t want to avoid paying tax, but they do want access to highly skilled specialists on a flexible basis. Let’s create a tax system which enables this to happen.

    Andy Chamberlain
    Deputy Director of Policy and External Affairs, IPSE

  9. Hi Andy,

    Not sure I accept your characterisation of my post. In particular, I said that I was not, or not yet, of the view that there was no reason to incentivise self-employment through the tax system. And I don’t think a reader without your sensitivities would find in my description of how the tax system relevantly operates (my Tax Fact One and Tax Fact Two) what you say you find in it. But let’s put that aside.

    The system we have at the moment draws a distinction between the employed and the self-employed. That might or might not be the right distinction but it was the launching point for my piece. In my piece, the problem I identified with the IR35 regime is that it has a practical flaw that enables those who, but for the interposition of a PSC, would be employed to be treated de facto as self-employed. It creates, to put it bluntly, an opportunity for that distinction to be abused. The solution I was pushing remedies that opportunity for abuse, no more and no less.


  10. It looks like you do not realise that the £5K dividend exemption is accompanied by a 7.5% increase in the tax rate above that exemption. This makes the position worse for the contractor, not better.

  11. Depends how much he takes in dividends and the way in which the shares in the PSC are held doesn’t it? Don’t let the door bump you on the way out.

  12. Some useful points, but the suggested solution is problematic.

    The problem with making this entirely an engager liability / responsibility is that few end clients will want an open ended liability. And since the in-or-out nature of IR35 is so nebulous, end clients will never be entirely sure that they aren’t going to get nailed years later. They won’t take that risk, so they will ALWAYS assume someone should be treated as an employee.

    So for any project for which they temporarily need skilled technicians, they will do one of two things. They may bring in the big consultancies, which will be much more costly than independent contractors. Or they may use overseas contractors (Asia, etc), which may or may not result in lower quality of work, but it will certainly reduce the UK tax intake.

    Either would be the death of the UK flexible workforce, especially the IT contractor. The contracts will dry up, and they will look for permanent employment or, if they can, leave the country. Brain-drain.

    I don’t want to be on payroll. I have more than one client, and I’m running a business. I’m working on developing a product. I’m not an employee. And I don’t want the law requiring anyone who engages my services for a few months to treat me like an employee. And my clients don’t want to see me as an employee, either — because I’m not one. That’s the real world of business today, whatever may be the fictional world in which the out-dated tax law exists.

    A much better solution is to look at your Tax Fact #2. Keep some incentive to self-employment, because the UK needs a flexible workforce, but reduce the gap enough to lessen the incentive, rather than trying to force contractors into an employment category that really doesn’t fit.

  13. Thanks for that thoughtful comment.

    But I don’t agree. There are XCos who engage MrYs directly. XCos and MrYs will continue to be incentivised to treat MrYs as self-employed. If XCo1 is too conservative it will lose out in the chase for talented labour to XCo2. And a ‘safe harbour’ for XCos – mooted in the most recent OTS report on status – is an idea that is worth pursuing.

    I’m not arguing in that piece for there to be no fiscal incentive to self-employment. I am on board with the benefits that a flexible workforce can bring to engagers, that workforce, and (through productivity gains) the country at large. I am not arguing for no change. But I am arguing against a structure that has been permitted to become abusive and I am suggestion a solution that – absent broader reform – delivers what seems to me to be the right change.

  14. “Depends how much he takes in dividends and the way in which the shares in the PSC are held doesn’t it?”

    Well obviously it does. But this adversely affects anyone with dividend income greater than £5,000. Anyone with dividend income less than £5,000 will only benefit if they are higher rate taxpayers (and therefore cannot reasonably be accused of being a tax dodger).

  15. And if you refer to the Summer Budget announcement, it clearly states:

    The government will set the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. While these rates remain below the main rates of income tax, those who receive significant dividend income – for example due to very large shareholdings (typically more than £140,000) or as a result of receiving significant dividends through a closed company – will pay more.

    These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500 million a year from 2019-20.

    There is no way that the changes to dividend taxation can possibly be construed as “the position will get better for the contractor – perhaps an awful lot better for the contractor – once the £5k dividend exemption comes in.”

  16. My view, based on having a substantial client list of contractors, is that the current proposals hinted at in the various HMRC/Treasury “reforms” and those suggested above create a number of difficulties, two of which are perhaps worth a mention.

    It is a fundamental right for all working people to arrange their affairs to their best advantage. If that is achieved via “abusive” tax planning (whatever that is) then perhaps correcting action is needed. How though can a contractor with specialist skills, required for a limited time by a client wishing to create a product/process/system before being released, who chooses to sell his skills to the highest bidder be guilty of tax avoidance?

    Secondly, the current proposals seek to tax such contractors as employees, but DO NOT given them employee rights. The trade off between client and contractor has always been a higher rate for the job in terms of pay, but a much lower rate in terms of benefits, especially perhaps membership of a statutory pension plan. Perhaps we should be saying “equal tax = equal rights”?

  17. Well, we are on the same page that the structure permits abuse.

    And we are on the same page re: Tax Facts One and Two.

    You wish to solve the problem by addressing the symptom. I’m simply suggesting another form of abuse will spring up, because the core problem is Tax Fact Two. As long as Tax Fact Two is true, abuses will spring up to take advantage of it. It would be better to strike at the root of the problem.

    In any event, thank you for your interest in the problem.

  18. My figures on dividends for next year include both the new rates and the £5,000 dividend allowance, assume that he draws a salary of £8,000 and the balance of the profit after corporation tax by way of dividend. The £50,000 earner currently bears a total of £9,053 (18.1%) in tax on these profits, leaving him with cash in hand of £40,947. Next year his tax burden increases quite a bit to £10,320 (20.6%) but as the rate of CT comes down he will (using 2016/17 rates and allowances) see that fall to £9,543 (19.8%). I really question anyone in that position who considers he is paying too much tax – he is uniquely favoured by the history that brought us to this point. I have lots more figures on all of this if anyone wants them – they are also in my paper on dividend taxation dated August 2015 which is available free from the ICAEW Tax Faculty website – just search for dividend taxation.

  19. Yep.

    Those who receive “significant amounts” by way of dividends. Those who receive smaller amounts will be fine. And those who receive higher amounts will be compensated for in part by a lower CT tax rate which will benefit contractors. And who’s to say that the Government will legislate to stop the £5k being enjoyed by multiple family members. I’m not aware of any sign of it so far.

    How are you feeling about that “no way” now?

  20. ‘Perhaps we should be saying “equal tax = equal rights”?’

    No. That’s conceptually wrong unless you add in “= equal pay” too.

    Equal pay = equal rights : fine
    Greater pay = fewer rights: fine, that’s what the market is all about

    So my view is that in normal circumstances the policy should be that equal income = equal tax. If a person takes more risks and so makes more income, fine.

    That view of equal income = equal tax is too simplistic though.

    A reason for a lower tax rate might be that a single individual’s risk appetite is too low compared with what it should be if one looked at it from the perspective of the whole nation (similar to a single investment v a diversified portfolio).

    In that case it can be right to use the tax system to encourage risk taking that is not reflected in the market. Examples of that might be EMI, EIS, R&D, employment allowance. In that case an explicit tax subsidy can make sense. Of course it helps to know whether that explicit subsidy is value for money.

    But saying that someone who contracts through a wrapper (e.g. a limited company) should pay a different amount of tax on the same income than someone who contracts through a different wrapper (e.g. partner, sole trader, employee) does not make sense.

  21. I used to be an IT consultant for a large US consultancy, working on projects across the UK and Europe. I started “Contracting” in 1996 and worked through my own limited company. After a few years, myself and some other contractors formed a small consultancy with a mixture of directors and employees performing the services. Around 2009, one of main clients “froze” IT spend and we split into smaller consultancies. Myself and my business partner are both directors of a small consultancy, both billing. We take on other contractors for assignments on projects when there is too much work for the two of us. All of our work is project based, usually directly contracting with the client, but occasionally through the “agency” route when there is no work at our usual clients. I am in contact with a large number of “contractors” and also regularly contribute and view the online “contractor” forums e.g. IPSE.

    A few points I would make from my perspective

    1) Most of the contractors I work with genuinely make efforts with contracts and mode of working to be “outside IR35” . They will usually get some legal opinion on a contract and actual working arrangements. About 2/3 of contractors I know over the years since IR35 came in have had Inland Revenue enquiries. They always get “grilled” over IR35, but the Inland Revenue have always been satisfied and none have ever been threatened with legal action.

    2) As far as expenses is concerned – I have a 3 year old mobile phone and a £400 laptop that I use to connect to client’s sites remotely. The vast majority of expenses that we incur are travel and subsistence. Our projects are throughout the UK and Europe (and some further afield). If this travel and subsistence had to be covered out of taxed income this would significantly affect the market – either look for geographically close projects or hike the rate to cover Travel and Subsistence out of taxed income

    3) Most large projects that we work on tend to be a mixture of some client staff, some management consultants, some specialist consultancies and some “contractors”. “Contractors” provide a good value alternative to the larger consultancies for specialist technical staff.

    4) The current proposals for replacing IR35 change the “test” that contractors have to face from the full employment / self employment tests to a single test “the right of supervision, direction or control”. Working on these larger projects in a “collaborative” manner I think this test will be harder to pass than the full employment / self employment tests.

    5) I have never heard of anyone “Phoenixing” a company as a result of an Inland Revenue investigation – surely the Revenue could just refuse that the company be closed down.

    6) In terms of family members being shareholders. The “conventional wisdom” seems to be that only a spouse can safely be a shareholder (because of the “outright gifts” exemption for spouses ?). I have never heard of anyone making a family member that is not their spouse a shareholder. Making a spouse a shareholder can certainly save some tax in some circumstances, but given the number of couples nowadays with both partners working and I think the only benefit is when the spouse is not already a higher rate taxpayer for the difference between their annual income and the higher rate band.

    7) Most contractors I know tend to pay a salary of around 10k and the rest in dividends – I think in my case that will increase the tax bill by about £2000 per director in 2016/17.

    8) I billed around 160 days this year (and around the same last year) Obviously currently I cannot claim unemployment benefit for “time on the bench”. I guess this would change if I worked PAYE ?

    9) I agree that I don’t think it makes sense to differently tax someone that is doing an economically equivalent role depending what vehicle they work through, whether that be self employed, working as a director of their own company or an employee. I think it would make more sense for the government to make each route tax neutral and then incentivise whatever they think is economically valuable to the country (eg employing people, having a mobile, highly skilled workforce)

  22. I’ve been a PSC contractor in an IT related field for over 20 years.
    It might be worth bearing in mind that my choice to set up a PSC had absolutely nothing to do with paying less tax, it was absolutely all about grossing more money and having more opportunities.
    I paid a lot more tax in the first 5 years of contracting than the previous 5 years of permanent employment.
    I also worked on projects which brought a lot of £££ into the country via exports, and later worked abroad paying tax in the UK.

  23. Sir

    I do not see what would be gained from transferring potential liability from the PSC to XCo.

    The test, as you point out, is what would the relationship be without the PSC. Clearly time and again the courts are deciding that the relationship is not one of employment.

    Since the courts are deciding no-one is liable for additional NIC under the IR35 rules, what difference would it make if the courts were deciding it was XCo that wasn’t liable rather than, as they now do, deciding that the PSC isn’t liable?

    Your ‘remarkably simple’ solution would not work.

    Incidentally, your use of the term ‘self-employed’ is miss-leading and inaccurate. Those working in PSC are invariably directors of their companies and not self-employed at all. Talk of class 2 and class 4 NIC suggests you are not properly aware of how this works in practice. And if you are not aware how the system works, I would be wary of accepting your proposals as to how to put it right.

    Also the term phoenixism did not arise from the current PSC/IR35 state of affairs but arose in the 1970s predominantly in the so called ‘rag trade’. It led to changes in the law which allowed the tax man to go after directors who did not hand over PAYE or NIC due. It is also possible to bar directors from office. It is not so easy to just walk away from PAYE/NIC liabilities.



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