Personal Service Company's and IR35

Payroll

The term personal service company or PSC is mentioned quite often. But there’s still quite a bit of confusion surrounding the term, especially in regards to contracting and company formation.

In this short guide. We’ll address:

• Defining a Personal Service Company
• Benefits of a PSC
• How IR35 status affects a PSC

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What is a personal service company?

The definition of personal service company is used to describe a type of limited company that is established by contractors or self-employed workers. Typically the PSC has a sole director who owns most or all of the shares.

One of the main reasons contractors use their own limited companies is because that it projects a thoroughly professional portrait of the services the individual or group can offer and is preferred by clients who want to work with companies over contractors.

Other Benefits of a PSC

A contractor that sets up and directs a PSC can benefit from the pros associated with PSCs:

• PSCs can be a tax efficient way for contractors to work, as they tend to split their income between salary and dividends
• PSCs can hire people as their company expands
• PSCs can claim a range of expenses
• It is possible to collect payment through the PSC, as an individual
• PSCs have a business-specific bank account

Personal service companies and IR35

The term personal service company was born through the introduction of IR35. If you consider your limited company to be a personal service company, then you will need to be fully aware of IR35 and ensure any contracts you work on are reviewed for their IR35 status.

The ‘IR35’ rules are designed to inhibit tax avoidance and national insurance contributions (NICs) via  personal service companies and partnerships. IR35 rules do not stop individuals selling their services through their own personal companies but rather they aim to remove associated tax advantages by doing so.

If a contract falls inside IR35 you will likely be subject to more tax. However, there are benefits such as 5% tax relief for running costs of your company, also it may be possible to register on the flat rate VAT scheme. For further information on the IR35 rules, please read our Comprehensive guide to IR35

Why should I appoint a contractor accountant?

Contractors who work through personal service companies or limited companies often appoint a specialist accountant to help them with their tax and finance planning. The benefits of this include:

Our accountants in Grimsby will provide ongoing tax advice and help ensure that you are operating in the most tax efficient way possible whilst saving you plenty of time in the process.

Specialist contractor accountants Haines Watts have been working in the contractor market for many years.For more information on personal service companies, forming a limited company or contracting in general please get in touch with Haines Watts. You can contact us by calling 01472 355215, using our online form or by emailing grimsby@hwca.com

Factsheet: IR35 Personal Service Companies