Note: This is an update on our original article ‘CIS vs Limited Company‘ which was published March 2021.

The IR35 reforms that came into effect on April 6, 2021, brought significant changes for contractors and self-employed workers.

As compliance becomes more critical, understanding how the rules affect you – whether you’re working under the Construction Industry Scheme (CIS) or through a limited company, often referred to as a Personal Services Company (PSC), is essential.

This article aims to help you understand the difference between CIS and PSC and choose the approach that’s most appropriate to you.

Does IR35 Apply To You?

IR35 aims to prevent ‘disguised employment’. It targets situations where workers use PSCs to avoid paying employee taxes.

• For CIS workers: If you’re a sole trader operating under the Construction Industry Scheme in compliance with its rules, IR35 does not apply. This is because CIS involves direct contracts between you and your hirer, with no ‘intermediary’ like a PSC.
• For PSC workers: IR35 will apply if it is determined that you are operating more like an employee than a self-employed contractor. Being ‘inside IR35’ means you must pay taxes similar to an employee.
• Construction workers who are not eligible for the CIS scheme or who cannot work via their own PSC due to the IR35 rules usually opt to work via an Umbrella company.

Do You Need A Status Determination Test?

While IR35 doesn’t apply to CIS workers, your employment status must still be assessed. This involves many of the same tests used for IR35 evaluations and is part of our standard onboarding procedure.

• For CIS workers: Any liability from an incorrect status assessment lies with your recruitment agency (the “first intermediary”) under the Onshore Intermediaries Legislation of 2014.
• For PSC workers: Before April 6, 2021, PSC contractors were responsible for determining their own employment status. Since the reforms, this responsibility has shifted to the recruitment agency or end hirer.

Because of this shift in liability, in both situations your recruitment agency or hirer will want to be assured that your self-employed status has been correctly assessed. All workers we pay undergo a rigorous assessment process. This makes hiring CIS contractors a viable and low-risk option for hirers.

Deciding The Best Approach

As a correctly-assessed CIS worker, IR35 would not apply. The key is to ensure your self-employment status is genuine and can withstand scrutiny. This means working with a reputable CIS payments partner, such as ourselves. We have specialised in CIS since the scheme was introduced and we are the largest members of the FCSA to provide CIS payment services.  Find out more about our CIS service.

If you are eligible to work via your own PSC, expect your agency or hirer to require you to undergo a status determination test, as they are now liable for correct classification of their workers. You may need to adapt if you do not pass the assessment or your hirer prefers not to engage PSC workers, and Umbrella may be a good option for you. Find out more about our Umbrella contracting service here. 

Why Choosing The Right Payments Partner Matters

If you’re a CIS contractor, aligning with a professional payments provider with experience in the construction sector – such as ourselves – is critical. We not only manage the risk of self-employment status assessments but also foster a culture of compliance, supporting you and your agency or end hirer.

If you have questions about your status or need support navigating these changes, seek expert advice from our team on 01244 684700 to ensure you stay on the right side of compliance.