What is a Personal Service Company (PSC)?
Personal Service Company or PSC refers to a limited company that exclusively offers its services to a single contractor only. Additionally, this contractor should be the company director and the sole shareholder of the business.
Also, the term “Personal Service Company” is used extensively in the context of the government’s rules with regards to figuring out the employment status, which is also referred to as IR35. These regulations can guarantee that workers are being classified accurately whether they are employed, or self-employed and employment tax is paid correctly.
Confused already? Well, here’s more! Do you know that in the world of business, PSC also stands for “Person of Significant Control”, which refers to the person authorized to administer vital influence over a company? Nevertheless, this is actually something different.
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Why Should I Set Up A Personal Service Company?
If you choose to work as a contractor, then you might discover that a few recruitment agencies and clients would favour working with limited companies instead of unincorporated sole traders. Most often, this will happen when the contractor is working for larger organisations as well as companies which are in the financial sector.
However, there are other reasons why some people would choose to work on contracts through a limited company. For instance, limited companies have limited liability, which refers to the segregation of your personal finances and business finances. There is also a possibility that the amount of tax that you will pay will be minimized.
What Are The Tax Implications?
By choosing to work through a Personal Service Company, you will be paying less tax. The reason behind this is that the PSC will be paid without any deductions for tax or NI. Additionally, PSC will only be liable for paying Corporation Tax on their income as well as other types of small business taxes. As the PSC director, you will be paying your tax efficiently by combining your salary and dividends. Most often, this combination can result in a lesser tax bill. At the same time, the company director can receive a bigger take-home pay than sole trade or direct employment.
It seems that HMRC is not quite enthusiastic on this state of affairs, particularly since they consider the contract between the end-client and the PSC as employment. Because of this, HMRC quickly launched a set of rules recognised as IR35 or off-payroll working rules. These rules are created to ensure that these workers are paying the same tax and National Insurance contributions just like any other regular employees who were offering their services directly to clients.
If you have plans of becoming a contractor and would like to work through a Personal Service Company, then there are certain things that you must consider. For instance, you must learn all about IR35. The contracts that you obtained should be professionally reviewed most especially if they fall under IR35. This could create a huge impact on how you are being paid, and how much money you need to spend for tax and NI.
How Can I Set Up My Own Personal Service Company?
All you have to do is register a limited company. If you are planning to set up your own Personal Service Company then we can help you. We can provide you with support and advice when it comes to setting up your limited company as well as in managing your business finances and limited company accounts.