Can I Continue Working Through My PSC If I’m ‘Inside’ IR35?
Working ‘inside’ IR35 Through Your Limited Company
The recent changes to IR35 legislation have affected different people in different ways. If you’re now ‘inside’ IR35, you may be wondering if you can or should still get paid through your PSC…
The answer: Yes, you can still get paid through your PSC if you’re ‘inside’ IR35. However, it’s important to understand how this works and what it means for you, as continuing to work through your PSC when you’re caught by IR35 is only beneficial in very limited circumstances. Below, we outline when it’s suitable to keep working through your PSC to help you decide on the best route for you.
When to work through your PSC
There are certain times when working through your PSC even though you’re ‘inside’ IR35 can be beneficial. For example, if you are working on more than one contract at once (some ‘inside’ and some ‘outside’ IR35) or you’re working a very short-term role, you may choose to put all payments through your PSC, no matter their IR35 status. This will allow you to manage your income in one place, meaning you can retain control over salaries, invoice dates, etc.
If you choose to work in this way, your fee payer (typically your agency, though this can occasionally be your end client) will need to pay your company through their payroll. They will be required to deduct Income Tax, Employees’ National Insurance, Employers’ National Insurance, and the Apprenticeship Levy, before paying you a net salary. Once you receive payment from the fee payer, this can be paid from your company to yourself and you will not be required to make any further deductions to this amount as it has already been taxed. You can also continue to pay yourself dividends that have been earned from contracts which fell outside of IR35. However, we would generally recommend not to process separate salary payments from your PSC.
While this method allows you to control your finances in one place, for most people, other ‘inside’ IR35 working options are more advantageous, providing additional benefits and enhanced flexibility.
When not to work through your PSC
For the majority of ‘inside’ contractors, it is best to find a suitable alternative such as JSA Umbrella (you can keep your PSC open or dormant while you work on an ‘inside’ contract if you think you will return to ‘outside’ contracting).
This is usually the best option for contractors as it results in roughly the same take-home pay as if you were contracting ‘inside’ through your PSC (depending on your agency’s rates and the Umbrella margin) because when you’re ‘inside’ IR35, you’re required to pay tax as an employee, no matter which way you work. So, if you’re working through your PSC on an ‘inside’ contract, the same tax deductions will be made by the fee payer as an Umbrella company would make.
Therefore, there is no financial benefit to working through your PSC if you’re caught by IR35.
You won’t be entitled to the same protections and employment rights you get via JSA Umbrella, such as Sick Pay, Holiday Pay and our exclusive rewards programme, and you will have to continue navigating the complex admin responsibilities, submitting your payroll (RTI) and VAT returns and ensuring your fee payer has deducted the appropriate taxes – without the support of an Umbrella company tax expert who could do this for you.
Therefore, our general rule of thumb is unless you are working on multiple contracts, it’s best to keep your ‘inside’ and ‘outside’ contracts separate – working through our Umbrella for ‘inside’ contracts and your PSC for those that are ‘outside.’
This doesn’t mean you have to close your PSC and switch to Umbrella permanently.
When you’re a full fee-paying PSC client with JSA, you can switch easily between ‘inside’ and ‘outside’ contracts with our IR35 Switch solution – perfect for contractors who want to continue operating ‘outside’ contracts through your PSC where possible but want the security and admin support of an Umbrella company for any ‘inside’ IR35 contracts.
With IR35 Switch, when you’re caught by IR35, you can ‘rest’ your PSC, pausing your operations while you work through JSA Umbrella. We’ll continue to manage your PSC accounts in the background, submitting your payroll (RTI) and VAT returns, as appropriate.
For as long as you’re working through our Umbrella, you’ll receive your payslip from us and we’ll pay your take-home pay straight to you, minus all of the usual deductions. As soon as your ‘inside’ contract ends, you can contact us and switch back to working through your PSC on an ‘outside’ contract, paying yourself a mixture of salary and dividends as usual.
If you’ve received an ‘inside’ IR35 status and are reconsidering your options, don’t hesitate to get in touch with us on 01923 257257. We’ll be happy to talk you through the details of working through your PSC if you’re ‘inside’ IR35 and help you choose the best solution for you.