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What is a Personal Service Company? Tax Implications & Benefits

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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