What is a Personal Service Company? Tax Implications & Benefits

Personal Service Company

You may come across the term personal service company (PSC) time and time again. But you may face confusion with this term when it comes to forming a limited company and providing services as a contractor. This term was introduced in 2000 by HMRC along with the IR35 legislation. There is no clear definition of the PSC, however, it is referred to as a limited company formed by a contractor to offer services to clients.

Let’s learn what is a personal service company, why you need to set up a PSC, what are the tax implications and what are the benefits of PSC? Read on to get all the answers.


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What is a Personal Service Company?

There is no clear definition of this company by the law. But in a broader sense, PSC is one of the common types of a limited company that is formed by contractors, consultants, and other self-employed workers to offer services to various clients.

The contractor or self-employed individual is generally the sole director and shareholder of the company. In a nutshell, it is a company that offers services to the end-users clients either directly or through an agency. These companies are often used by HMRC to determine the employment status of the individual (or IR35).


Why Choose a Personal Service Company?

One of the prominent benefits of working through a PSC is that it is a professional way for contractors and self-employed individuals to offer their services to clients. For this reason, many clients and requirement agencies prefer to work with the PSC instead of self-employed individuals.

Here the clients are liable to provide employment benefits to a PSC like sick, holiday pay, etc. Importantly, it serves as a separate legal entity from your personal assets.


What are the Tax Implications of Working via a PSC?

Working through a PSC is a viable way for contractors to work as it is more tax-efficient than working individually. Through a PSC, contractors and self-employed individuals can pay themselves using a mixture of salary and dividends and get a tax advantage. However, corporation tax is payable on the profits earned.

Moreover, another benefit of working via a PSC is there is no Class 1 National Insurance to be paid by the employer or employee. As a result, they can end up getting more take-home pay based on whether they fall inside or outside of IR35.

If you want to be a contractor working via a PSC, you need to ensure that:

  • you are well are of IR35
  • the projects you take will be reviewed professionally (if they fall inside IR35)

As a result, it can leave a great impact on how you will be paid and the amount of tax and NI you need to pay.


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Benefits of PSC

Since PSC works as a limited company, it means contractors will get all the limited company benefits working as PSC. Here are the benefits that you will enjoy:


Benefits of PSC


  • Separate legal entity
  • Easy to set up and expand
  • Tax efficiency
  • Can employ more people with the business’ expansion
  • Offer a professional and formal way to present services
  • Can claim a range of expenses
  • Protection from business risk
  • Stronger work-life balance


Turn to AccountingFirms!

If you want to set up a personal service company, rely on our contractor accountants for help and advice. Our accountants are experienced in providing accounting and taxation services for contractors. With up-to-date knowledge of legislation that affects contractors, we offer tailored financial services to PSC helping them to achieve their business goals.


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Disclaimer: This blog is written for general information on the PSC.

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