Personal Service Company (PSC) guide

Are you thinking of setting up a Personal Services Company (PSC) as your limited company? Be carefull!

As a middle range committed contractor (earning more then £20 per hour) you may wish to contract through a Limited company known as a Personal Service Company or PSC. BITE do not offer any PSC solutions but if you wish to contract through BITE we recommend you seek a qualified accountant to set up a PSC for you.

New Case Law makes PSC's less attractive

The recent Dragonfly contracting case has up held the HMRC argument that the right of substitution in a contract will only take a contractor outside of IR35 (yielding significant tax and expense benefits) if it is genuine. Contractors should therefore always check the end client–agency contract to see if it limits the right of substitution. Without sight of this contract you (the contractor) are risking your tax status if operating via a PSC (Personal Service Company).

Top Tip: Only use a PSC if you've checked your compay and the end client contract! Will the agent even let you see this? Don't get caught in the middle.

Important Legislation changes the way PSC's operate

BITE encourages contractors to contract via its temporary PAYE Umbrella or Consultants employment contracts but recognises that you may wish to supply your services to BITE via your own limited company (PSC).

However BITE offers these few simple guidelines to help ensure you contract legally.

It may not be worth setting up a PSC when you can use an effective umbrella solution either the Relocation Umbrella for international contractors or the PAYE Umbrella.

There are opportunities to increase your net income between 15-20% (on average) over most PAYE schemes but these will be dependant on being OUTSIDE IR35 AND NOT BEING CAUGHT BY THE MANAGED SERVICE COMPANY LEGISLATION EFFECTIVE APRIL 2007.

IR35 determines whether according to your contract and working conditions whether you are employed paying full tax and national insurance or a true freelancer where you can pay yourself via dividends.

MSC Legislation dictates that PSC'S may only be set up via independent Qualified / Chartered Accountants and that organisations offering tax saving advice for contractors may well be MSC, therefore PSC's receiving such advice in turn become MSC's and liable TO PAY FULL TAX AND NATIONAL INSURANCE on all income (we do not set up your company for you or offer you tax advice).

BITE recommends that you therefore contact a legally recognised firm of qualified accountants to form your PSC and that they should be experienced in providing services to the IT & Accountancy Industry.

BITE will work with contractors providing there own PSC but will only accept those companies provided through “bonafide” qualified / chartered accountancy firms.

Please also note that Tier 5 (two year holiday working maker) visa holders cannot legally set up and operate a PSC as they will be in breach of the visa regulations however S&S can advise you on a legal alternative.

Benefits include

• Potential tax savings (UP TO 20%) if a legitimate freelancer contracted outside of IR35
• Opportunities to claim legitimate business related expenses
• Structuring the company to suit your business needs
• Opportunity to retain funds within the company

BITE OFFER CAREER ADVICE so that you can make the right decision for your personal circumstances and backs this up with the opportunity of qualified independent accountancy, financial and legal advice on your contract, employment, financial, pension and visa services. BITE sources umbrella company services, all PSCs must be incorporated via a firm of qualified / chartered accountants.