What is a PSC?

A Personal Service Company (PSC) is a term first used by HMRC following the introduction of IR35 in April 2000.

Although there is no clear legal definition of what exactly constitutes a PSC, in most freelancing circles it is widely regarded as the following:-

• A UK registered limited company.
• The contractor acts as director of the company.
• The contractor is the sole shareholder, (sometimes split 50/50 with their spouse).
• The contractor manages and controls the company's bank account.
• The contractor supplies professional services to agencies / clients via the PSC.

The main benefit of a PSC is that if you can be judged to be 'self-employed' under current HMRC guidelines, then you will be able to pay yourself a small salary and get most of your income from dividends.  Dividends aren't subject to  NICs and attract a much lower rate of Income Tax compared to the higher rate tax bands.

Advantages of setting up a PSC·

• A PSC is the most tax efficient way of working if you are outside of IR35.
• You can claim a wider range of expenses.
• A PSC will give you access to the flat rate VAT scheme.
• You keep complete control of your financial affairs meaning you do not have to risk your money with any third party administrator.
• You have greater opportunity for tax planning than PAYE Umbrella.

Disadvantages of setting up a PSC·

• Some of the paperwork can be complicated and you may need to pay an accountant to do a lot of the work for you.
• A PSC can be costly if you contract for a very short period of time and then go back to permanent employment.
• You will be responsible for issuing invoices, and may have to spend a lot of time chasing late payments.
• There is a lot to set up, such as a business bank account.
• A PSC is not ideal for contracts less than £25k per year.