Is a Personal Service Company the right choice for you?

What is a Personal Service Company and is it right for you?

A Personal Service Company (PSC) is a type of limited company which is becoming more popular among contractors because it’s often the most tax efficient way to work and limits your personal liabilities. If you work in the private sector, a PSC is an option you should consider. (If you work in the public sector you will need to be aware of new legislation which comes into effect on April 6th which may affect the financial advantages of a PSC. You can read our detailed briefing on the new rules for contracting in the public sector).

Working through a PSC does carry additional legal and financial responsibilities. You can discharge these responsibilities yourself or talk to our team of specialist contractor accountants.

When deciding whether a PSC is right for you, it’s important to consider:

• whether the contract you’re undertaking involves working under Supervision, Direction or Control (SDC)# or falls inside or outside IR35* – both will fundamentally affect your tax position
• whether you intend to work in the public or private sector
• your anticipated pay rate, how many hours you work and how much holiday you plan to take
• what business expenses you expect to incur
• whether you intend to work for yourself in the long-term and how long your contracts typically last.

# Supervision, Direction and Control (SDC) is a test, stipulated by HMRC, to ascertain ‘how’ the work will be carried out i.e. will you or your work be subject to supervision, direction or control.

*It’s important to consider whether you are subject to IR35 legislation for each piece of work you undertake, as this could have financial implications. IR35 is also known as ‘intermediaries legislation’ and is a set of rules that affect your tax and National Insurance if you’re contracted to work for a client through an intermediary (a PSC is classified as an intermediary). If HMRC believe that you are working ‘within IR35’ then the intermediary has to operate PAYE and National Insurance contributions on any salary or wages it pays to you during the tax year.

You can click here to read our straight-forward guide to IR35. However, because your status vis a vis this important piece of legislation can change frequently, we offer unlimited free IR35 reviews with one of our accountants.

Advantages and disadvantages of a PSC

A PSC is often the most tax efficient (and therefore financially rewarding) way to fulfil contracts. However, to follow this route, you’ll normally have to become a Company Director and will therefore need to assume additional responsibilities including the submission of annual accounts to Companies House and tax returns to HMRC.

What are the advantages of running a PSC?

• More take-home pay

In our experience, you can expect to take home around 85% of your pay (subject to the salary you take, if your work falls outside IR35, your tax liability and National Insurance contributions).

• Protection of personal assets

A PSC has all the advantages of a limited company so you will have a level of protection from the threat of personal financial loss if your business fails.

• A wider range of business related expenses

Your company may be able to offset business expenses, such as directors’ salaries, accountancy fees, equipment, software, telephone, travel and subsistence, accommodation, insurance and pension contributions, against income. Tax would then be liable on the net income.

• Option of a straight-forward set-up

If you appoint an accountancy practice (like Crest Plus) they can guide and assist you in fulfilling your legal and tax obligations. For example, registering your business with Companies House and arranging your NI contributions, salary, dividends and self-assessment tax return each year.

What are the disadvantages of running a PSC?

• Administrative responsibilities

You’ll have legal and financial responsibilities which you can discharge yourself or seek the support of our team of specialist contractor accountants.

• Potential to incur penalties

Failure to fulfil responsibilities can result in penalties. You can also be charged interest if your corporation tax is not paid on time.

• Insurance cover is advisable

You may need to take out public liability, employers’ liability and professional indemnity insurance. You may also wish to consider income protection insurance, especially if you have a mortgage or other financial responsibilities.

Setting up a PSC

If you think that a PSC could be the right way for you to work, our expert accountancy team will guide you through the process to get you up and running so that you can concentrate on finding and fulfilling your contract opportunities. If you are not sure, you can speak to our Relationship Team who will seek to understand your working arrangements and provide financial illustrations to compare a PSC with other options which may be available to you, such as working for an umbrella company or working as a sole trader.

Please get in touch today on 01244 684700 or complete the enquiry form below and we will contact you to arrange a convenient time to speak.