• It is relatively straightforward to set up a limited company – especially if you appoint a contractor accountant – and you can be set up in 24 hours.
• PSCs are easy to expand and it is possible to hire more staff if your workload requires additional people.
• Contractors who use a limited liability company are protected to a certain extent from business risk.

The term Personal Service Company (PSC) was coined by HMRC alongside the introduction of the IR35 legislation in 2000. There is no clear definition of what a PSC is. It is usually used when referring to a limited company that has a sole director who owns most of – or all of – the shares.

A PSC is often used to describe a common type of limited company that is set up by self-employed workers, contractors and consultants. The PSC supplies professional services to end-user clients directly via the contractor or through an agency. PSCs are favoured by many end clients and recruitment agencies as they do not like to hire self-employed individuals unless they have their own limited company.

There is one key difference between a PSC and a Managed Services Company (MSC) and that is that an MSC has a group of owners who manage a group of contractors. In a PSC, the individual or group of contractors owns and manages it. An MSC and PSC are subject to different regulations by HMRC and are suited to different types of business structures.

One of the main reasons why you should use a PSC is that having a limited company is more respected by clients and offers a more professional and formal way for contractors to present their services.

Clients often favour contractors as they want to bring in a highly skilled professional for a short period of time or for a specific job and do not want the hassle of hiring a permanent employee. By using a contractor’s limited company in a contract for services clients are avoiding the employer-employee work structure.

Contracting through a PSC limited company can offer many benefits:

• PSCs have a tax-efficient pay structure in place as income can be drawn from the company as salary and dividends. This means that employers or employees Class 1 National Insurance will not be due on a large part of their income.
• PSC directors are able to claim tax relief on a variety of business expenses as long as they can prove that the cost has been incurred wholly and exclusively for business purposes.

• It is relatively straightforward to set up a limited company – especially if you appoint a contractor accountant – and you can be set up in 24 hours.
• PSCs are easy to expand and it is possible to hire more staff if your workload requires additional people.
• Contractors who use a limited liability company are protected to a certain extent from business risk.

IR35 was introduced in 2017 to the public sector and was used to determine whether a contractor is considered a true contractor or a disguised employee. The introduction of IR35 stopped contractors reaping the tax benefits of running their own limited company despite doing the same role as a permanent employee.

When the IR35 legislation was introduced it was discovered that a large number of micro and small businesses would also be affected. HMRC coined the term PSC to describe businesses that they saw as potential tax avoiders who may be subject to investigations.

As a result of IR35 legislation, you need to be fully aware where each contract you undertake falls within the legislation. It is recommended that you get each contract individually assessed, and if you are caught by IR35 you will have to reassess how you operate for that assignment.

IR35 is due to be rolled out into the private sector from April 2020.

It is beneficial to appoint a contractor accountant such as Churchill Knight & Associates Ltd who is experienced in providing accountancy services for contractors. As specialists in the contract market, we have up-to-date knowledge about all the legislation that will affect contractors. A specialist contractor accountant will help you with tax planning to help you work towards your business goals. To find out more about our services give our friendly team a call on 01707 871622 or fill out the short form on this page.

Call us on 01707 871622 or complete the short form below to find out more about our contractor accountancy service.