The increased activity came at a time when the Government was under considerable attack for allowing some of its senior public sector workers, such as head of Students Loan Company, Ed Lester, to operate through their own limited companies, which were seen as a means of avoiding tax and NICs. The Government promised to clean up its own Whitehall act and bring private sector companies in line too. To this end HMRC have set up a specialist IR35 enquiry team. This issue is gaining further publicity given the extensive use of such companies at the BBC.
The attraction of working through a Personal Service Company is obvious, you can choose how and when you are paid, for instance by way of dividend, and not only save 13.8% NIC for the company but also 12% for the director. Receiving 'remuneration' by dividend also reduces the amount of tax payable in a year.
The risk associated with Personal Service Companies is that if HMRC undertake a review and they consider 'deemed' employment is appropriate, the additional Tax, National Insurance and potentially a large penalty are payable by the contractor (effectively the Director of the Personal Service Company), NOT, the paying company.
As the tax and NIC at stake are high HMRC will put greater resource into this area. It is vital therefore that directors of such company's critically review the arrangements they have in place.