{"id":9831,"date":"2023-01-22T07:50:21","date_gmt":"2023-01-22T07:50:21","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=9831"},"modified":"2024-05-17T15:37:31","modified_gmt":"2024-05-17T14:37:31","slug":"personal-service-company","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/personal-service-company\/","title":{"rendered":"What is a personal service company?"},"content":{"rendered":"
A personal service company is a limited company that is set up by a sole contractor or other self-employed individual to provide a specialist professional service to client organisations. Typically, the individual will be the only director and the sole (or majority) shareholder of the company.<\/p>\n
Whilst not defined in law, HMRC coined the term \u2018personal service company\u2019 when IR35 legislation came into effect in 2000. Structurally, it\u2019s just a normal limited company, usually with a single director who also owns all or most of the company\u2019s shares.<\/p>\n
You may see the abbreviation \u2018PSC’ used on other websites when discussing personal service companies. However, this shortened form is more commonly associated with \u2018people with significant control\u2019 in limited companies. To avoid confusion, we will not use the abbreviation \u2018PSC\u2019 in reference to personal service companies throughout this post.<\/p>\n
Personal service companies are most often used by self-employed people who work as contractors, consultants, and freelancers in the following industries:<\/p>\n
Through their company, the individual offers a specialist professional service directly to end clients or via recruitment agencies on a temporary basis.<\/p>\n
Many clients organisations and agencies prefer to work only with contractors who operate through their own limited company, rather than those who are sole traders. This is particularly the case when hiring contractors in the finance industry.<\/p>\n
Self-employed and sole trader \u2013 are they the same thing?<\/span><\/a>\n Sole trader or limited company \u2013 which is better for me?<\/span><\/a>\n <\/p>\n The personal service company structure is deemed more formal and professional. It provides a corporate intermediary between the individual contractor and the businesses to whom they supply their services on a short-term basis.<\/p>\n There are several benefits to providing professional services through a personal service company, making it ideal for contractors and other self-employed individuals.<\/p>\n Like all limited companies, personal service companies are distinct entities, which means they are legally separate from their directors and shareholders. There is no such legal separation with the sole trader structure – the business and the person are one and the same in the eyes of the law.<\/p>\n This legal separation enables contractors to limit their personal liability for the debts and actions of the business, present a corporate image, and reduce their personal tax liability.<\/p>\n Operating through a personal service company makes it easier for contractors to secure work with larger businesses and organisations, especially those in the finance industry.<\/p>\n Many such clients refuse to work with sole traders, choosing instead to engage exclusively with contractors who provide their services through their own limited companies.<\/p>\n The are three main reasons for this:<\/p>\n The reality for many contractors is that setting up a personal service company is essential for bidding on high-value contracts, securing work with certain organisations, and operating in particular industries.<\/p>\n A personal service company provides \u2018limited liability\u2019 protection to contractors. This means that their financial exposure to business debts is limited to the nominal value of their shares, which is usually \u00a31 per share.<\/p>\n See also: Are shareholders and directors liable for company debts?<\/a><\/p>\n Beyond that sum, the company itself is responsible for any business debts that the contractor incurs in the course of carrying out their professional services.<\/p>\n Providing professional services through a personal service company is more tax-efficient than the sole trader structure or working through an umbrella company.<\/p>\n As the director and shareholder of your own company, you can:<\/p>\n By arranging your remuneration in this way, you can (legally) reduce your personal tax and National Insurance contributions, whilst also making tax-efficient savings toward your retirement.<\/p>\n How to pay yourself through a limited company<\/span><\/a>\n How to issue dividends in a company limited by shares<\/span><\/a>\n <\/p>\n Additionally, contractors have greater scope to claim business expenses when operating through a personal service company.<\/p>\n Many contractors choose to set up a personal service company because it enables them to include other people in the business.<\/p>\n For example, bringing in their spouse as a shareholder or employee, to provide them with a stake in the company, meet the increasing demand for services, or pursue opportunities to grow the business.<\/p>\n Personal service companies offer greater flexibility to both contractors and clients.<\/p>\n For the contractor, this structure allows them to be their own boss, choose which work to accept or decline, and achieve a work-life balance that is right for them at any given time.<\/p>\n For clients, they can hire a skilled and experienced professional to work on a short-term basis, as when required, rather than having to recruit an employee to fulfil a temporary requirement.<\/p>\n The concept of personal service companies came about as a result of IR35 legislation, which HMRC introduced in 2000.<\/p>\n Also known as \u2018off-payroll working\u2019, IR35 rules<\/a> aim to tackle the issue of disguised employment, whereby an individual works through their own limited company to disguise the fact that they are effectively working as their client\u2019s employee.<\/p>\n In this situation, the contractor and their client enjoy certain tax advantages that neither party is legally entitled to receive. It also means that the client organisation avoids providing various employment rights and entitlements to the worker.<\/p>\n If you work as a contractor through a personal service company, you must ensure that the nature of your working relationship with clients does not fall inside the IR35 rules.<\/p>\n The process of setting up a personal service company is exactly the same as forming any other type of private company limited by shares.<\/p>\n The quickest and easiest way to do this is online, through a company formation agent like Quality Company Formations.<\/p>\n To set up a personal service company online, simply choose one of our company formation packages<\/a> and provide the following information on our online application form:<\/p>\n You must select a company name that is unique and complies with all company name rules<\/a>. It should end with \u2018Limited\u2019 or \u2018Ltd\u2019.<\/p>\n Every limited company requires a registered office address. This will be your company\u2019s official address and it will be disclosed on public record. Companies House and HMRC will send all official correspondence to this address.<\/p>\n What is a registered office and why do I need one?<\/span><\/a>\n A prestigious London Registered Office Address - only \u00a339.00 per year<\/span><\/a>\n <\/p>\n To protect your privacy as far as possible, we advise against using your home address as a registered office. Instead, you should provide the address of your commercial premises, if applicable, or use a professional registered office service.<\/p>\n You must enter at least one Standard Industrial Classification, or \u2018SIC code\u2019, on the application form. You can choose up to four different ones.<\/p>\n See also: Choosing a SIC code for your limited company<\/a><\/p>\n The code(s) you use should describe your main business activities – i.e. the professional services that you intend to provide through your company.<\/p>\n The director is the person who is responsible for running the company (i.e. you). Most personal service companies have only one director, who is also the shareholder.<\/p>\n You must provide the following details about the director:<\/p>\n Your residential address will not appear on public record unless you provide it as your service address. The service address is where Companies House and HMRC will send your official director\u2019s correspondence.<\/p>\n What is a director’s service address?<\/span><\/a>\n A Director's Service Address in central London - only \u00a326.00 per year<\/span><\/a>\n <\/p>\n To protect the privacy of your home and boost your professional image, we advise using a non-residential address as your service address.<\/p>\n Shareholders are the people who own a company through the purchase of one or more shares. Typically, at least one of the shareholders is also a director of the company.<\/p>\n Most personal service companies have only one shareholder<\/a>, but you can have more. For example, if you wish to include your spouse or other family member in the company.<\/p>\n You must provide the following details about each shareholder:<\/p>\n The nature of a shareholder\u2019s control determines whether they are also a person with significant control (PSC)<\/a> in the company.<\/p>\n Each shareholder is required to take at least one share in the company. If you are setting up a personal service company with only one shareholder (i.e. yourself), you need only issue one share.<\/p>\n Understanding limited company shares<\/span><\/a>\n Issuing shares when setting up a company – know your options<\/span><\/a>\n <\/p>\n However, you may wish to issue more shares during the company formation process, giving you the option to transfer shares at a later date. For example, if you are planning to make your spouse or other family member a shareholder at some point in the future.<\/p>\n The following information on shares is required:<\/p>\nBenefits of a personal service company<\/h3>\n
1. Separate legal entity<\/h4>\n
2. Easier to secure work<\/h4>\n
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3. Limiting personal liability<\/h4>\n
4. Tax efficiency<\/h4>\n
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5. Opportunities for growth<\/h4>\n
6. Flexibility<\/h4>\n
Beware of IR35 legislation<\/h3>\n
How to set up a personal service company<\/h3>\n
1. Company name<\/h4>\n
2. Registered office address<\/h4>\n
3. Business activity<\/h4>\n
4. Director\u2019s details<\/h4>\n
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5. Shareholder’s details<\/h4>\n
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6. Shareholdings<\/h4>\n