Last updated: 14 October 2026
Does moving you to a personal service company avoid tax?
Not if the work is really employment. If an employer or agency asks you to set up a personal service company (PSC) and work through it, the off-payroll working rules (IR35) still apply. Where the client is a medium or large organisation, it must decide your status and, if the role is inside IR35, the fee-payer deducts PAYE and NIC as if you were an employee. With small private clients, your company must make the assessment and pay deemed employment tax itself. You may also lose employment rights such as holiday pay and sick pay.
How the rules apply in 2026/27
| Client | Who decides status | Who pays tax if inside IR35 |
| Public sector body | Client | Fee-payer (agency or client) |
| Medium or large private company | Client | Fee-payer |
| Small private company | Your PSC | Your PSC, through a deemed payment |
A company is small if it meets 2 of: turnover up to £15 million, balance sheet up to £7.5 million, 50 employees or fewer. These thresholds rose from 6 April 2025.
Why employers push workers into PSCs
Moving staff to PSCs can save the employer 15% employer NIC and the apprenticeship levy, and shift holiday pay and pension costs. HMRC treats this as a key risk area. If a worker does the same job with the same control, it’s still employment for tax.
Example
Mark has worked for a logistics company for 4 years. The company asks him to resign and invoice through his own limited company for the same role, hours and line manager. The company is large, so it must issue a status determination statement. Because nothing has changed, the role is inside IR35. The agency paying Mark’s PSC deducts PAYE and NIC. Mark has no tax saving, loses employment rights and still pays his accountant.
Signs you’re inside IR35
- The client controls how, when and where you work
- You can’t send a substitute
- You’re paid for time, not deliverables
- You’re integrated like an employee, with line management and benefits
Your rights
If you’re pressured to use a PSC, you can challenge the status determination through the client’s disagreement process within 45 days. If you’re really an employee, you may claim employment rights at a tribunal. Umbrella companies are another route but don’t change the tax outcome.
Umbrella companies from April 2026
From 6 April 2026, agencies supplying workers through umbrella companies are jointly liable for unpaid PAYE, so umbrella arrangements also offer no route to avoid employment taxes.
Common mistakes
- Accepting a PSC arrangement without a status determination
- Paying yourself dividends on a role that’s inside IR35
- Missing the 45-day window to dispute a decision
- Ignoring loss of employment rights
Moving from employment to consultancy properly
It can be legitimate to leave a job and work as a genuine consultant, for example with several clients, your own equipment and the right to send a substitute. Get a written status assessment for each contract and keep evidence of how the work is actually done.
Frequently asked questions
Is it illegal to use a PSC?
No, but the tax depends on status.
Can I claim expenses inside IR35?
Very few; travel relief is restricted.
Does a PSC help with pension contributions?
Only outside IR35.
What if my client is small?
Your company decides and accounts for any deemed payment.
Related: deemed payments and IR35, whether you’re employed or self-employed and whether to incorporate.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with IR35 and contractor tax. See our contractor accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
