Personal Service Company (PSC)
What is Personal Service Company (PSC)?
A personal service activity, as is clear from its name, has primary purpose of providing personal services and it includes a wide range of activities or professions, including law, engineering, medicine, design, finance, accounting, performing arts etc and as the name implies, a personal service activity focuses and emphasizes on directly providing a personalized services such as legal advice.
A personal service company is a term coined by the HMRC in order to describe the companies which are set up either by an individual or small group of individuals to offer their services via the medium of the company rather than in a personal capacity and the company is owned and managed by the individual or small group of individuals as a limited company. Although there is no concrete definition of a personal service company, HMRC views the contractors who are working for their clients using their own limited companies as personal service company and also uses the lack of clear definition of the term “personal service company” to their advantage while checking the tax affairs of the contractors.
Difference Between personal service company and managed service company
The basic difference between a personal service company and a managed service company is that in the former case, the company is owned, managed and organized by the individuals or a group of individuals whereas later is owned and governed by separate set of owners and are subject to different regulations by HMRC.
Personal service companies Uses
Personal service companies are most commonly used for the contract jobs considering that many recruitment agencies and clients will not prefer to hire self-employed individuals unless they have their own limited company and there are number of reasons for the same, risk being one of the major one because everyone wants to sign a contract or hire services of a firm rather than of an individual. Also doing so brings its own share of hassles such as sick pay or holiday of the individual whereas in case of a firm like a recruitment agency it is being taken care by the firm itself and also there is no employment relationship. In addition to this, going or hiring services through a firm adds additional layer of protection which is otherwise missing in case of an individual and a worker who is involved in off-payroll working when they work for a client through their own intermediary, often a personal service company. Without the intermediary of the PSC, an individual’s employment status would be determined by their relationship status with the client company, although the question would be whether they are an employee or self-employed.
Personal Service Company and IR35
The term “personal service” was coined by the HMRC through the introduction of IR35, which was launched in April 2000 in order to arrest disguised employment. Under IR35, it was stated that if you consider yourself or your limited company as a personal service company , then you need to be thorough with the IR35 status. Also any and every contract you undertake will be reviewed for its IR35 status and that’s possibly the only pitfall of using or having a personal space company i.e. you must be fully aware of the provisions of IR35 and must try your best that its provisions do not apply. HMRC designed IR35 rules in order to prevent the avoidance of tax and NIC through the use of personal service companies and associated partnerships and the rules are applicable if you as an individual has sold his or her services directly instead of a company, then you will be listed as employed rather than as self-employed. A personal service company has its own share of advantages for those who wish to offer their services with the benefit of limited liability primarily because they are not very expensive to set up or to start with and also considering the pace at which the self-employment is increasing, the use of PSCs is likely to increase as well and with a little bit of planning at your end, you can for sure avail all the benefits and advantages associated with the personal service company.There are various reasons why one should set up a personal service company, such as: There are various benefits of owning a personal service company and if you have a limited company then:
- You are your own boss.
- You have the option to hire people as the company grows.
- You can claim a range of expenses.
- You can collect payment through a personal service company as an individual.
- You have an efficient pay structure in place.
- You have a stronger and better work-life balance.
For the contracting sector, a personal service company is known and defined in terms of a limited company which has a sole director who owns most or all of the shares and it generally supplies professional services to end user clients directly or indirectly i.e. via an agency and in real world scenario, most of the contractors have no other option but to use a limited company and most of the contractors who are working through personal service companies or limited companies opt for hiring a full-time accountant who helps them in fixing their taxes and finances by taking care of your business and personal taxation needs. Having a specialized accountant will also ensure that you are contracting in the best possible manner.
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