A Personal Service Company (PSC) is a term often used to describe a limited company of which the sole or main shareholder is also its director, who, instead of taking up employment or working directly for the client, operates through their own company.
What is a Personal Service Company?
A PSC is a limited company set up by a contractor to provide services to clients. In most cases, the contractor is usually the only shareholder and director of the business. However, a PSC can provide the services of a small group of individuals with more than one shareholder. The contractor’s PSC usually supplies professional services to end-user clients directly or via an agency. A contractor working through a PSC can work in any industry, and any role deemed outside IR35, for example, in professional services in areas like IT or engineering.
Advantages of working through a Personal Service Company?
There are many benefits associated with working via a PSC, such as:
- A PSC is a separate legal entity, meaning a limited personal liability exists when you contract via a limited company. It separates your company finances from your personal finances, giving you additional protection when running your business.
- Many end clients and agencies prefer to work with PSCs over sole traders due to the potential liability involved with the transfer of debt when engaging sole traders.
- Access to more financial and tax planning opportunities.
- You can take advantage of a range of tax deductions and expenses that contractors working via an umbrella company cannot claim.
- As a PSC, your business can benefit from improved reputation and credibility.
- A PSC’s name is registered at companies house; therefore, if you wish to trade under a specific name, becoming a limited company will ensure that no one else can use that name.
- Limited companies can be a tax-efficient way for contractors to work as they can pay themselves a combination of salary and dividends. Your salary can also be deducted from company profits which reduces the amount of corporation tax due.
Are there any disadvantages of working through a Personal Service Company?
Setting up a limited company can be more complicated than other business models, as the accounting requirements are often more complex and time-consuming. You must supply the details of all company directors, such as their name, address, nationality, and date of birth. You’ll also need to provide a company address and a registered address if this is different. Personal and corporate information will be listed in the public domain for anyone to view, as they will be listed on companies house once you register.
Personal Service Companies and IR35
Professionals have been using their own limited companies to provide services to their clients for many years. However, with the introduction of IR35 in 2000, HMRC decided that this was no longer an appropriate business model for every contractor. IR35 is the common term for the intermediaries legislation, a tax legislation introduced to tackle a form of tax avoidance whereby contractors are providing their services similarly to employees but through an intermediary (usually a PSC).
HMRC believed many contractors incorrectly described their employment status as ‘self-employed’ and operated as ‘disguised employees’. The legislation was introduced to ensure contractors working similarly to employees would pay the same amount of national insurance and income tax as their permanent counterparts.
Before April 2017, contractors operating via a PSC were responsible for determining their IR35 status and paying the appropriate taxes. However, in 2017, off-payroll in the public sector was introduced. As a result, it became the responsibility of the public sector organisation engaging the contractor to determine the worker’s status. On the 6th of April 2021, the off-payroll changes were extended to the private sector.
If you accept an assignment outside IR35, you can continue to operate via a limited company and pay yourself with a combination of salary and dividends. However, if you accept an assignment that is inside IR35, it may be more beneficial to work via an umbrella company.
Contact Fusion Business Services today to discuss our contractor accountancy service
Fusion Business Services has the perfect contractor accountancy service whether you have been contracting for years or a new to contracting and looking to thrive as the director of your own limited company. Our fully customisable service allows you to select the features you want to ensure you get the precise level of accountancy you need. To find out more about our contractor accountancy service, please complete the short form on our website or call our Sales Department on 0808 2294020.
