Personal Service Company

What are personal service companies? Do you need a PSC? Are you a PSC? What are the advantages and disadvantages of working through a personal services company?

Contractors, Freelancers, Interim Managers, Consultants...who work through their own limited companies are often referred to as ‘personal service companies’.

The term is somewhat broad as most contractor contracts don’t specify that it is actually them who must perform the work, it is usually their limited company that is contractually obliged. However, on balance it does seem like a fair and accurate description for how most single personal limited company contractor’s work.

There are, as with most things, pro’s and con’s for working as a contractor through a limited company.

Pros and cons of working through a personal service company

  • Working through your own limited company is the most tax efficient way of working, which is fair as you are managing your own company and tax affairs.
  • There is certain degree of administration, most contractors settle into a routine after a few months with admin taking around 15-20 mins per month (this assumes you have a good contractor specialist accountant helping out).
  • You will have access to a wide range of business / contractor expenses - Contractors and indeed all businesses, can claim most things that are ‘wholly and necessary for business purposes’: if you keep this definition in mind you won’t go too far wrong knowing what expenses you can claim.
  • Professional way of working - Being limited (forming a limited company just takes 5 minutes, read our plain English guide), having a company, a business bank account and being registered for VAT may help clients build a professional picture of you and your commitment to contracting.

Alternatives to PSCs

There are alternatives to operating as a limited company and a personal service company, you could choose to work through an umbrella company, indeed our sister company Contractor Umbrella is an umbrella company.

An Umbrella Company will raise invoices on your behalf, they will then, once funds are received from your agency/client, make payment to you with the appropriate deductions for tax and national insurance (fees for operating through an umbrella company are similar to those using an accountant).

However, there is something to bear in mind, you will pay more tax through an umbrella company, which again is quite fair as essentially you’ll be an employee of the umbrella company, you will be liable for both employee's (2011/12 - 12% and 2% after the higher rate tax threshold) and employer's national insurance contributions (2011/12 – 13.8% on all earnings) plus you won’t be able to benefit from the Flat Rate VAT Scheme. But for short sub three month contracts, or contracts less than £25k per year, some contractors do make use of umbrella companies (read more about the advantages and disadvantages of limited vs umbrella).

Why do clients use contractors?

Ease of use, no long term commitment, mobile work force, fewer people on the head count, the only way to get some specialist services...to be honest the list is endless.

However, over the last few years the demand for contractors has been growing and is fast becoming a life style choice for many (read more about contractor news and the rise of contracting by clicking the link). Plus with the end of life-long employment in the same company, the end of final salary pensions and the beginning of statutory redundancy payments rather than gilt edges good-byes that used to exist means it’s often mutually beneficial for both contractor and client to operate this way.

Self Assessment tax return: service company question

Something that does confuse people is the question on the self assessment questionnaire that asks ‘if you provided your services through a service company'. You provided your services through a service company if:

  • you performed services (intellectual, manual or a mixture of the two) for a client (or clients); 
  • and the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder
  • and the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally.’

It is quite a wordy and somewhat complicated question but really it is just capturing what payments were made via salary and those by dividends. If you have any questions about this please feel free to give us a call on 0500 152500 / 01442 275789

Final thoughts about Personal Service Companies and Contracting

Contracting can be challenging and rewarding; without a doubt contractors are seen in a different light to their employed counterparts. Often they can been seen as specialist consultants and as such aren’t burdened with the day-to-day office politics; it can also be a good way to learn what a company is really like before maybe becoming a full time employee if that’s your end goal. Contracting can be great for your CV due to the range of experiences and also be a good way to develop a more rounded professional profile.

Having a good specialist contractor accountant and setting your limited company up in the best way does help and of course, and is something we’d be more than delighted to help with. 

If you have any questions about contracting or would like further tax and Limited Company advice please either contact our New Enquiries Helpdesk on 0500 152500 / 01442 275789 or email nikki.hanlon@sjdaccountancy.com

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
  • Money back service guarantee. All your telephone calls and emails will be answered the same day or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £120 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com.

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

Form your own Limited company with SJD - our same day online company formation service includes company bank account set up, VAT/PAYE registration and advice on optimum share structure. 

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.