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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.

Why use a personal service company?

 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.

Advantages of working through a personal service company or limited company

Contracting through a limited company comes with many advantages, some of which are listed below:

  • One of the main benefits of working through a limited company is that you may be able to increase your take home pay. Limited companies or personal service companies are widely considered to be the most tax efficient way of working. Discover why you could earn more as a limited company contractor by reading our limited or umbrella guide.
  • The process of forming a limited company is probably much quicker and more straightforward than you think, and is often completed in one working day. As part of our accountancy service Nixon Williams provide limited company setup free of charge for all of their clients.
  • Limited companies are generally considered to appear more professional as they have their own registered company name. Having "limited” in your company name will give you a greater air of respectability, which could give you the edge when it comes to landing new contracting jobs.
  • Limited company contractors are entitled to claim a wider range of business expenses. If you can define a cost as wholly and exclusively for business purposes then you are able to claim the cost as a business expense. Read our Guide to Expenses for Contractors to find out more.

Read a full list of contracting benefits here.

Personal service companies and IR35

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, such as 5% tax relief for running costs of your company and being able to register on the flat rate VAT scheme. 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.

Why should I appoint a contractor accountant?

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 new business team on 01253 362062 or email newbusiness@nixonwilliams.com.