On 6 April 2021 the new rules for deciding whether a contractor, working through a company or other intermediary, is engaged on terms equivalent to employment, are being extended to contracts with large and medium-sized private companies.

Often freelance contractors work through their own company, sometimes called a Personal Services Company, by which they are employed.  The Personal Services Company then supplies the contractor’s services to the customer.

Before 6 April 2021 it is the Personal Services Company, unless working for a public entity, that makes the decision of whether the contractor is engaged by the customer on terms equivalent to employment.  From 6 April 2021 it is up to the customer, if they are a large or medium-sized company, to decide whether the contractor is engaged on terms equivalent to employment.

If the customer decides that the contractor is engaged as a “worker” it is “deemed employment” and the customer deducts PAYE and NI from payments to the Personal Services Company.  Note that it is “deemed” employment; the worker is not entitled to sick pay, holiday pay, pension etc.


However, from a VAT point of view nothing has changed.  The Personal Services Company continues to supply the services of the contractor and, if the company is registered for VAT, continues to issue invoices to the customer and accounts for VAT on the services as before.

Deemed employment involves the Personal Services Company in a complex interaction of PAYE, NI and Corporation Tax.  Companies in this position need to understand the mechanics of this interaction.

More information is available from HMRC (see https://www.gov.uk/guidance/ir35-what-to-do-if-it-applies) and various professional bodies.