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The phrase personal service company first came to light in 1999, when used by then Chancellor Gordon Brown, when introducing the well-known legislation IR35. There is no clear definition of what a personal service company (PSC) is, though when discussing contracting, it is usually the name used to refer to the limited company director, who owns most if not all of the shares.
Personal service companies are most commonly used for contract jobs, as many recruitment agencies and clients, will not hire self-employed individuals unless they own their own limited company.
This is due to a number of reasons, the main one being risk. When a client hires in contract work, they do not want a contract with the individual and subsequently do not want an employment relationship. This isn’t meant as a negative, it’s just simply they do not want the hassle that comes with a full time employee, such as holiday and sick pay. Hence, they go through recruitment agencies, it’s not only because they can hire in skills quickly, it’s also because there is another layer of “protection” for them between the contractors.
Contracting through a limited company comes with many advantages, some of which are listed below:
Read a full list of contracting benefits here.
As mentioned before the term personal service was born through the introduction of IR35. IR35 was introduced in April 2000 to combat disguised employment. In a nutshell, IR35 stopped full-time employees leaving on a Friday and returning to their desks on a Monday as a limited company contractor and reaping the tax benefits of running their own limited company, but without any of the risk.
This means that if you do consider your limited company to be a personal service company, you will need to be fully aware of IR35 and make sure all contracts you undertake are reviewed for their IR35 status. If your contract does fall inside IR35 you will be subject to more tax. However, there are still many benefits available for running costs of your company, but please note that from 1st April 2017 the Government introduced changes affecting contractors working in the public sector that will remove the 5% tax relief. For more information on how IR35 works, please read our Comprehensive guide to IR35 or to check the status of your contact, why not try our IR35 checker.
Many contractors who work through personal service companies or limited companies will appoint an accountant who specialises in the contractor market to help them with their tax and finances. An accountant will take care of your business and personal taxation needs and will provide ongoing tax advice and help ensure that you are contracting in the most tax efficient way possible.
Specialist contractor accountants Nixon Williams have been working in the contractor market since 1995. Their fixed-fee premier accountancy service includes a direct line to your own dedicated accountant who you can contact as many times as you wish at no extra cost.
For more information on personal service companies, forming a limited company or contracting in general please get in contact with our friendly contractor advice team on 01253 362062.