What is IR35? IR35 Explained

What is a PSC?

A personal service company (PSC) is a type of limited company in the UK set up by a freelance contractor or self-employed individual that is used to provide their services to clients. The company acts as an intermediary between the worker and the clients, allowing the worker to offer their services without being considered an employee of the client.

More detail

A Personal Service Company (PSC) is a company that provides an individual's services to a client through a limited company rather than as an employee of the client. The individual is typically the sole director and shareholder of the PSC and provides their services to clients through the company. This arrangement can offer several benefits, including limited liability, taking advantage of tax efficiencies, and greater flexibility in negotiating pay and working conditions.

Whilst the phrase "PSC" is commonly used, it is not defined in statute and is simply a one-person company, and no different in law to any other limited company.

The Government has also accused the use of PSCs of being associated with tax avoidance. Historically, this is because of the differential in taxes paid. PSC owners can pay themselves through company dividends rather than salary, reducing their overall tax and National Insurance contributions. In more recent years, the difference in tax rates is considerably smaller, thereby reducing tax motivated incorporation.

In modern times, the primary differential in taxes generated is due to firms not having to pay employer National Insurance Contributions of 13.8% on top of gross payments if they hire contractors. Whereas if firms hire employees, 13.8% is due.

The UK government introduced the IR35 legislation in April 2000 and the off-payroll rules in April 2017 to address the tax differential issue to ensure that individuals and firms who engage with PSCs pay more tax if the engagement is considered one of "deemed employment".

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