Osborne aims to clamp down on personal service companies

The new government legislation relating to temporary workers using personal services companies (PSCs) is expected to result in 90% of PSC contractors joining the payroll of the company they are doing work for. This means they will be required to pay a higher rate of tax and national insurance, which will be deducted at source. The government is hoping that the change in legislation will raise an estimated £400m annually.

Both the public and private sector will be affected by the legislation. If a worker has been undertaking work or providing a service for one organisation for more than a month, then they will be required to be added to the payroll. While some individuals using personal service companies will still be able to maintain that status, they will be very much in the minority overall.

A government source admitted that there was a “legitimate use” for personal service companies, but that they estimated that 90% of those using them should really be ‘on the books’ of the organisations they were working for. The source added that while some workers were confused about the rules, others were deliberately using PSCs to reduce their tax liability. It is these workers that the government intends the new legislation to clamp down on, while also making the requirements clearer for everyone else.

It has emerged that in 2012 over 30% of BBC presenters were paid through a personal services company. Since then the corporation has limited this practice, but sectors including nursing and IT still involve widespread use of PSCs. The amount that can be saved in tax by setting oneself in this manner, as opposed to being on the payroll can be substantial. The new legislation is expected to see thousands of temporary workers face a major tax hike from 2016-17 onwards.