Personal service company: substance over the status determination statement
Dmitri is a data architect who works through his wholly owned personal service company, D Ark Ltd. Since January 2024 he has worked full-time for Halberd Bank, a large UK bank, on a 24-month contract at £900 a day. Halberd requires him to attend its London office three days a week, work core hours of 9am to 5pm, and use its laptop and systems. The contract contains a substitution clause, but Halberd has refused every substitute Dmitri has proposed and says it wants 'Dmitri's expertise, not a stranger'. Dmitri is paid a fixed monthly fee, has no right to profit from fixing the price, and is not liable for defects. Halberd has issued a status determination statement saying the engagement is outside the off-payroll rules, but its HR team used a generic checklist and did not consider control, substitution or financial risk. D Ark also provides 10 days' consultancy a year to a small marketing agency with turnover of £1.2m and 12 employees.
1. Apply the status tests and assess whether the Halberd engagement is likely to be inside or outside the off-payroll working rules.
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Start with substance, not the label. The key tests are mutuality of obligation, control, substitution, financial risk and integration.
- Control: Halberd sets core hours, attendance and systems, which points inside.
- Substitution: a clause exists, but it is not genuine because Halberd vetoes substitutes and wants Dmitri personally. A contractual right that cannot be used does not make the engagement outside.
- Financial risk: Dmitri is paid a fixed monthly fee, cannot profit by fixing the price and is not liable for defects, so he bears little risk.
- Integration: the role is full-time for 24 months within the bank's operations, using its equipment.
On balance the engagement is likely to be inside the off-payroll rules. The status determination statement is not determinative; HMRC and tribunals look at the actual relationship.
2. Who is liable to account for PAYE and NIC if the engagement is inside the rules, and what difference does Halberd's status determination statement make?
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Because there is no agency, Halberd is the fee-payer. If the engagement is inside the rules, Halberd must calculate the deemed direct payment: the amount invoiced excluding VAT, less any allowable expenses, then deduct PAYE and employee NIC and pay employer NIC. D Ark receives the net amount. D Ark can deduct the deemed salary and employer NIC in its corporation tax computation, but it cannot also pay the same amount as dividends.
The status determination statement matters for liability. A valid statement shifts the determination to Halberd and, if Halberd has taken reasonable care, protects it from PAYE liability. But a statement produced from a generic checklist without considering control or risk is vulnerable. If HMRC finds it was not produced with reasonable care, it can recover the PAYE and NIC from Halberd. The statement does not change the underlying status.
3. Advise Dmitri on challenging the status determination statement and on the separate small-agency engagement.
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Dmitri can challenge the statement. He should send a disagreement to Halberd with reasons; Halberd must respond within 45 days. If it does not respond, Halberd becomes the fee-payer. If it responds and Dmitri still disagrees, he can ask HMRC to review. He should keep evidence on substitution, control and risk.
For the small marketing agency, the client is small: turnover £1.2m and 12 employees are within the small-company test. The off-payroll rules do not apply; Chapter 8 IR35 applies, so D Ark must decide the status. If that engagement is outside, no deemed salary arises; if inside, D Ark operates PAYE. The two engagements are separate, so one can be inside while the other is outside.