Decoding a Personal Service Company
IT contractors who operate via a Limited Company, might have heard the term ‘Personal Service Company’ (PSC) been used to describe them.
For those who are new to contracting, this could be a little confusing, and could leave you asking yourself “what personal service is my company providing?”
To make things a little clearer we look at what a Personal Service Company is and how it relates to you, as a IT contractor.
What is a Personal Service Company
Describing someone as a ‘Personal Service Company’ could conjure up thoughts of somebody working as a butler, or a personal assistant. But, that would be incorrect. The term ‘Personal Service Company’ is often used in HMRC guidelines, and it refers to contractors who operate through their own Limited Company.
It is no surprise that HMRC, do not give an exact definition of what a Personal Service Company is, many speculate that they have deliberately left it open to interpretation.
Should you operate via a Personal Service Company ( Limited Company)
So, in order to offer clarification, a Personal Service Company is comparable to a Limited Company.
As a IT contractor, there are different options available to you. You could decide to work via an agency, through an umbrella company, or through your own Limited Company.
If you think that you will earn more than £25,000 a year (rates for IT contractors start at £380 per day, going up to £600+ depending on experience) then working via your own Limited Company is the better option. Reasons for this are:
- your take home pay is greater than if you worked through an umbrella company (it can be as much as 75% of the contract value)
- you can claim for a wider range of expenses, and have access to the Flat Rate Scheme (FRS)
- could give you access to a greater choice of contracts (clients and recruitment agencies are increasingly asking their contractors to operate via a Limited Company, as it reduces the risk to themselves)
- operating via a Limited Company reduces your own personal liability
- it can help create a professional image for your company (in turn could help you attract more contracts)
There are a number of things to be aware of if you decide to set up your own Limited Company. Initially, you will have to spend some time filling in paperwork, opening a business bank account, registering the company name with Companies House (see our article on ‘Choosing a name for your limited company’) and registering for VAT. However, if you don’t fancy doing all this yourself, then an experienced firm of contractor accountants (such as ourselves) can do it for you.
Does my Personal Service Company (Limited Company) have to use an accountant?
In short, no! But we strongly advise that you do. The UK tax system is extremely complicated and if you want to operate in the most tax efficient manner, only a qualified and experienced accountant can advise you how to do this. Additionally, trying to navigate the maze that is IR35 can be very tricky. It is much easier with the guidance of a knowledgeable accountant.
Our article ‘Choosing a contractor accountant’ gives you advice on how to find an accountant that is right for you.
Personal Service Company (Limited Company) and IR35
The term ‘Personal Service Company’ came to fruition in 1999, when the then Chancellor (Gordon Brown) introduced the complex and controversial IR35 legislation.
IR35 is a type of tax avoidance legislation that was introduced in 2000. It is extremely complex, but we recommend that all contractors have at least a baseline understating of it. Basically, it was introduced to stop employees leaving their job and returning a few days later to the same role but as a contractor, operating via a personal service company (or limited company).
So if you are considering working via a Personal Service Company (Limited Company) check your IR35 status with an experienced contractor accountant, first.
Our team is on hand to help you through this process. Give us a call on 020 8952 2234, or Request a Call Back.