What is a Personal Service Company?

Read our guide which summarizes about the merits of contracting through a personal service company.

Personal Service Company was first introduced in 1999, when used by Chancellor Gordon Brown whilst introducing the reputed legislation IR35. There is no specific clarity of what a personal service company (PSC) is, when discussed contracting, it is often the name used to specify the limited company director, who owns most if not all of the shares.

Why use a personal service company?

Personal service companies are most frequently used for contract jobs, as many clients and recruitment agencies consider to own their own limited company instead of hiring self-employed individuals.

This is due to various reasons, the major one being risk. When a client hires in contract work, they do not wish to have a contract with the individual and consequently do not wish to have an employment relationship. This isn’t meant as a negative, it’s simply because they do not want any inconvenience that appears with a full-time employee such as sick pay and holiday. Hence, they go through recruitment agencies, it’s not because they can hire in skills instantly, it’s also because there is another ‘protection’ layer for them between the contractors.

Advantages of working through a personal service company or limited company

Some of the advantages listed below come with contracting through a limited company as discussed:

  • You may be able to increase your take-home pay. Personal service companies or limited companies are extensively considered to be the most tax efficient working way. Find out why you could earn more as a limited company contractor by going through our limited or umbrella guide.
  • The procedure for forming a limited company is likely to be much quicker and more direct than you think and is usually completed in one working day. As part of our accountancy service, all the clients are offered a limited company set up free of charge by Nexa Accountants.
  • Limited companies are often considered to look more professional as they have their own registered company name. Having "limited” in your company name will give you much of respectability, which could provide you the margin when it comes to getting new contracting jobs.
  • Limited company contractors are eligible to claim an extensive range of business expenses. If you dictate a cost as completely and entirely meant for business purposes then you are able to assert the cost as a business expense. Go through our Guide to Expenses for Contractors to find out more.

Personal service companies and IR35

As specified before the personal service was originated through the IR35 introduction. IR35 was introduced in April 2000 to withstand disguised employment. In short, the full-time employees were stopped by IR35 to leave on a Friday and to return on their desks on a Monday as a limited company contractor and obtain the tax benefits of running their own limited company, but without any risk.

This means that if you prefer your limited company to be a personal service company, you will be familiar with IR35 and ensure that all contracts you undertake are analyzed for their IR35 Status. If your contract is caught up inside IR35 you will have to pay more tax. However, there are plenty of benefits available for running costs of your company, but from 1st April 2017, the government brought forward changes which have affected contractors working in the public sector that will remove the 5% tax relief. Read our comprehensive guide to IR35 in order to know more.

Why should I appoint a contractor accountant?

An accountant who is a specialist in the contractor market is hired by contractors working through personal service companies or limited companies for getting help in their tax and finances. An accountant will ensure that your personal and business taxation needs and will offer ongoing tax advice and help to confirm that you are contracting in the most tax efficient manner.

Nexa Accountants is one of the specialist contractor accountants who offer fixed-fee premier accountancy service wherein your own dedicated accountant may contact several times as you wish at no extra cost.

Contact Nexa Accountants on 020 3004 9303 for getting more information on personal service companies.