Understanding what a Personal Service Company (PSC) is may seem complex, but it doesnt need to be. A PSC is often set up to provide services to clients. But how and why do people in the UK choose to set one up? To learn more about what a PSC is, continue reading.
Understanding What a PSC is
So, what is a Personal Service Company (PSC)? A PSC is a type of limited company, meaning it’s a separate legal entity from its owner, who’s usually a self-employed individual.
PSC can also mean ‘Person of Significant Control’, which refers to someone with rights over a company and how it’s handled. However, in today’s blog, we’ll be focusing specifically on personal service companies.
HMRC first came up with the term PSC back when IR35 legislations were introduced. A PSC is usually set up by the likes of contractors or freelancers operating in various industries across the UK.
Why Form a PSC?
By forming a PSC, self-employed workers can offer their services more professionally. Many clients prefer working with a PSC over a contractor or self-employed individual. This is due to a PSC being deemed more trustworthy.
Several other benefits come from forming a PSC:
- Separate legal entity
- Tax efficiency
- Control over your business
- Limited liability
- Ability to deduct business expenses
Although worthwhile, to fully benefit from owning a PSC, it’s advisable to seek advice from a trusted accountant – such as ourselves at LJS Accounting Services.
Is a PSC the Same as a Limited Company?
No, a PSC is not the same as a limited company. However, as mentioned, it is considered a type of limited company. Unlike limited companies, the owner of a PSC is usually the main shareholder. Despite being slightly different, both a limited company and a PSC follow a similar setup process.
Setting Up a PSC: Step-by-Step
Setting up a PSC doesn’t have to be difficult. With the right guidance, you can successfully set up your PSC. Follow our simple step-by-step guide below.
Step 1 – Choose a Company Name
The first (and one of the most important steps) is to choose a name for your company. Without a company name, you won’t have a business. Deciding on a name for your PSC shouldn’t be rushed – ideally, it should reflect your line of work, although it doesn’t necessarily have to. Once a name has been chosen, you must check it’s not in use already.
Step 2 – Register With Companies House
You must register your PSC with Companies House. The process is relatively easy, and a few key bits of information will be required:
- Your company name
- Registered company address
- Director’s details (name, DOB, etc)
- Any additional directors (if applicable)
By law, you must register with Companies House if you form a limited company, including a PSC. Registering your PSC with Companies House can be done online or by post. Once your company is registered successfully, you will be issued a company number.
Step 3 – Create a Memorandum and Articles of Association
Within a Memorandum and Articles of Association, rules and regulations are set related to operating a PSC:
- Memorandum of Association – a type of legal statement that must be signed by anyone agreeing to form the company
- Articles of association – includes written rules about running a PSC, all of which will be agreed upon by any directors or shareholders beforehand
Step 4 – Set a Bank Account Up
Personal and business-related finances should be separated. Upon creating a PSC, you should set up a dedicated bank account. By doing so, you can manage company finances directly and ensure taxes are paid on time.
Step 5 – Register for Corporation Tax and VAT
Registering for Corporation Tax is essential while operating as a PSC. As a PSC, you will be liable for Corporation Tax on any profits – making it important to register during your setup. You may also be required to register for VAT – but only if your PSC exceeds the current VAT threshold of £90,000 over 12 months.
Step 6 – Understand PSC and IR35 Rules
As a PSC, understanding IR35 is key. IR35 aims to prevent tax avoidance – something that can lead to ongoing disputes and penalties with HMRC and land your PSC in trouble. If you’re unsure of what IR35 is, continue reading for more guidance.
PSC and IR35
IR35 was first introduced in April 2000. The main purpose of IR35 is to ensure there are no loopholes within the tax system where people are paying less in taxes than they should be.
In some cases, workers have formed a limited company (or in this case a PSC) to pay fewer taxes. With IR35 in place, contractors will pay the correct amount of Income Tax and National Insurance – the same as if they were employees. If you’re still feeling unsure about IR35, you can find more information here.
How Can LJS Accounting Services Help?
Owning your own PSC can be daunting, but it doesnt need to be. With the right assistance, you can successfully run a company – whether it be a limited company or PSC. At LJS Accounting Services, we offer expert services to clients.
We consist of a friendly team, who are highly experienced in their roles. Without having your accounts in order, your PSC may struggle to thrive. Having accounts set up is most useful for PSC owners. With us, you’ll be appointed a dedicated accounts clerk who will calculate earnings and tax bills every year.
To learn more about our wide range of services, please contact us today. We look forward to you getting in touch!
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
