Understanding the Contract Chain: End Client, Agency and Your PSC

Understanding the Contract Chain: End Client, Agency and Your PSC

If you operate through a Personal Service Company (PSC) and work on contracts sourced through a recruitment agency, you sit inside a structured legal and tax chain. Understanding where each party sits, what each party owns, and how IR35 flows through that chain is essential reading before you sign anything.

The Standard Contract Chain

For most off-payroll engagements in the UK, the contract chain runs in one direction:

End client → Agency → PSC → You (the contractor/director)

Each link in that chain carries a separate contract. You do not have a direct contract with the end client. Your PSC contracts with the agency, and the agency contracts with the end client. This matters enormously when it comes to IR35, liability, and who actually pays you.

You can browse current outside-IR35 contracts on this platform to see how these arrangements are structured in live listings.

Who Is the Fee-Payer?

The fee-payer is the party in the contract chain that sits immediately above your PSC and pays your PSC directly. In most standard arrangements, that is the agency.

This is not simply a billing detail. Under the off-payroll working rules introduced from April 2021, the fee-payer carries specific tax obligations when a role is determined to be inside IR35. If the engagement is deemed inside IR35, the agency (as fee-payer) acts as the deemed employer. That means the agency is responsible for operating PAYE and deducting National Insurance Contributions before any fee reaches your PSC.

Sources including ContractorUK's liability guide and Ross Martin's off-payroll overview set out this liability structure in detail.

Where IR35 Status Is Determined

The end client, not the agency and not your PSC, is responsible for determining IR35 status in most private-sector and all public-sector engagements. The end client must issue a Status Determination Statement (SDS) and pass it down the chain.

The key points:

• The end client owns the status assessment and must take reasonable care in producing it.
• The SDS must be passed to the party the end client contracts with directly (usually the agency) and also to the PSC.
• If the end client fails to issue a valid SDS, liability for any unpaid tax can shift back up to them.
• The agency, as fee-payer, then acts on the SDS: operating PAYE if inside IR35, or passing the full fee to the PSC if the client states the role is outside IR35.

For a fuller explanation of the SDS process, HMRC's off-payroll working guidance is the primary reference.

Outside IR35: What That Means for Your PSC

Where the client states a role is outside IR35, the contract chain operates differently. The agency pays your PSC the full agreed fee without any PAYE deduction. Your PSC then manages its own tax position, including Corporation Tax on profits and any salary or dividend decisions made by you as the director.

Being outside IR35 does not eliminate your tax obligations. It simply means those obligations rest with your PSC rather than being operated at source by the fee-payer. Contractors should take their own advice from a qualified contractor accountant on how to manage their PSC's tax position efficiently.

For day-rate benchmarks across different sectors and disciplines, this platform publishes live data drawn from current listings.

Small Company Exemption and the April 2026 Change

If the end client qualifies as a small company under the Companies Act thresholds, the IR35 assessment responsibility currently falls back to the PSC contractor, not the end client. In that scenario, you self-assess your own status and carry the liability accordingly.

From 6 April 2026, the government is raising the thresholds that define a small company. According to analysis published by Freelancer Financials, this change is expected to bring approximately 14,000 additional companies within the small company definition. For contractors working with those clients, status determination responsibility will shift back to the PSC.

This is a meaningful shift. If your end client falls within the new small company limits, you will need to assess your own IR35 position with care and document your reasoning. Working with a qualified IR35 contract reviewer becomes particularly important in those circumstances.

Wholly Overseas Clients

If the end client is wholly based overseas and has no UK presence, the off-payroll working rules do not apply to the contract chain at all. In that situation, your PSC self-assesses its IR35 position regardless of how the chain is structured. The agency's role as fee-payer does not trigger deemed employer obligations in the same way. HMRC's guidance at gov.uk covers the overseas client position.

A Quick Reference: Key Roles in the Chain

• End client: Determines IR35 status (for large/medium and public-sector clients); issues the SDS.
• Agency: Acts as fee-payer; operates PAYE if inside IR35; passes full fee if the client states outside IR35.
• PSC: Your trading vehicle; receives fees, manages its own tax if outside IR35; receives net pay if inside IR35.
• You: The contractor/director of the PSC; the worker whose working practices determine the IR35 outcome in substance.

Understanding these roles helps you ask the right questions before you accept a contract: Has an SDS been issued? Who is the fee-payer? Is the end client large, medium, or small? Browse the latest outside-IR35 listings to see how these structures appear in practice.

This platform does not determine, verify, or warrant IR35 status; the SDS is the client's legal responsibility. Contractors should take their own advice and consider IR35 insurance.