Personal Service Company (PSC) guide

 

BITE can help set you up with your own limited company and ensure you are compliant through a qualified accountancy practice.

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

What is it? A PSC is a corporate vehicle a limited company that contractors use to contract through. It has to be incorporated and registered at companies house and will need an independent accountant and a director (usually the contractor if operating as a PSC), Insurance to operate, a business bank account and if trading at sufficient levels registration for VAT.There are some fantastic benefits to contracting through a limited company BUT they come with important legal responsibilities and you need to be working outside of IR35 to enjoy them so  be careful! Contact us for advice!

As a middle range committed contractor (earning more then £250 per day) you may wish to contract through a Limited company known as a Personal Service Company or PSC. BITE offer PSC Limited Companies through a firm of qualified accountants. If you wish to contract through BITE and have your own Ltd Company ( PSC ) we recommend you appoint a qualified accountant to set up and advise you on administering your PSC. Additionally your accountant should be qualified to advise you on tax planning and the opportunities this may provide you.

YOUR PSC MUST BE SUPPORTED BY YOUR APPOINTED ACCOUNTANT (who will charge fees) AND RUN BY YOURSELF AS AN APPOINTED DIRECTOR SHAREHOLDER WITH A MATERIAL INTEREST (5% or more) AND CANNOT BE RUN BY BITE ON YOUR BEHALF (legal requirement under the MSC Regulations).

YOUR PSC IS RECOGNISED AS A SUPPLIER AND MUST HAVE A LIMITED COMPANY BUSINESS BANK ACCOUNT IN THE NAME OF YOUR COMPANY IN TO WHICH BITE MUST PAY THE MONTHLY FEES DUE AGAINST YOUR GENERATED INVOICE FOR SERVICES SUPPLIED!

Case Law, poor contracts and new “Off payroll Working Rules IR35 legislation” will make PSC’s less attractive and could result in an unexpected tax bill!

The 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. If operating via a PSC (Personal Service Company) you will need rock solid evidence that you can substitute and are operating outside IR35. BITE’s compliance portal can help you do this.

The HMRC Financial Intermediaries legislation focus on the issue of Direction. Control and Supervision and it is critical that your contract and working conditions prove you are not subject to this and that you are in business of your own accord i.e. running a genuine business and that you are not a disguised employee.Checking your actual working conditions is therefore vital. The BITE Compliance portal can help you do this.

Top Tips: Check with BITE use our Contract Administration and Compliance service, with the contract log and mobile job seeker /Compliance portal for contractors & ensure you are insured. 

Only use a PSC if you’ve checked your company contract status and genuinely believe you are operating outside of IR35 after gaining third party independent opinion!

Ensure you have a “Status Determination Statement” (SDS) from the fee payer or an independent assessment of your contract and working conditions that shows you are working on a contract outside of IR35.

 Try to see the end client contract and or obtain the SDS from them! Will the agent even let you see this? Don’t get caught in the middle without support. Also do take out your own professional indemnity insurance for at least £250k via a reputable company in addition to the £2 million consultancy insurance that BITE will provide for you as a member of their contractors team.

Important Legislation PLUS the “Off Payroll rules” are changing the way PSC’s have to operate in the UK

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).There is a range of legislation affecting Ltd company contractors working through a PSC. 

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

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, HAVING A GENUINE RIGHT OF SUBSTITUTION, NOT SUBJECT TO DIRECTION SUPERVISION OR CONTROL and RUNNING A GENUINE BUSINESS OF THEIR OWN ACCORD.

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.

Other important legislation impacts on contracting via a PSC.

MSC Legislation dictates that PSC’s may only be set up via independent organisations usually Qualified / Chartered Accountants and that organisations (other than accountancy practices) offering tax saving advice for contractors may well be an 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 you need your own accountant or tax advisor and if needed we can refer you to several to choose from).

AWR ( Agency worker Regulations ) October 2011 are resulting in disliked administrative burdens on agencies and opted out limited company contractors are theoretically exempt, meaning some agencies may prefer Limited company contractors. However unless the contractor is outside IR35 there is no benefit to them and indeed there may be increased costs. The PAYE Supply or full employment via a consultancy might be a better alternative.

FINANCIAL INTERMEDIARIES Legislation  April 2014 requires that your PSC reports on you and your earnings or that it reports to an agency who will report to HMRC all payment received each quarter.

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. Try Sweeting and Smedley as a good start point and our referral will mean you get set up for free!

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

OFF PAYROLL RULES APRIL 2020: Require that the fee payer (usually the end client) determines that any contract is inside or outside of IR35 If they are medium sized or large company. They can use a HMRC tool (CEST) to help them however experience in the public sector for the last two years has shown that the client is reluctant to do this.In many cases they simply declare the contract inside IR35 and if an agency is involved the Contractor is forced to operate through an umbrella company on the agencies preferred supplier list.This would make their PSC an irrelevant or unnecessary cost and the major benefits of contracting may be lost.

However  the end client is supposed to produce a status determination statement which they share with the contractor. Therefore a well supported or well informed contractor could produce a the evidence to prove to the client that the status of the contract is “outside IR35” and the SDS produced therefore outside of IR35.

BITE’s Compliance portal can help the contractor do this!

PSC 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
  • Major tax planning opportunities

 To realise these benefits safely you must have a qualified accountant assisting you,be working on contracts independently assessed as outside of IR35 and operating in a compliant manner and not have been disqualified as a director.

PSC (Personal service company) or Limited company formation checklist

1. Form your Limited company and register with companies house with you as a Director – ensure you create the correct share structure

2.Ensure you have a material interest in the company (at least 5% shareholding) or a controlling interest 51%

3.Register your limited company for VAT (In 99% of cases you will need to charge an agency or client VAT).

4.Open a Business bank account in the name of the limited company- you cannot legally be paid without this allow at least 4 weeks and check you have a good credit rating so the bank will co-operate!BITE can help you do this in less than a week.

5. Appoint an accountant to help manage your company- ensuring you make all statutory returns on time

6.Insure your company correctly with Professional Indemnity Insurance – take professional advice on your requirements

7. Understand IR35 and compliance, how it affects you and each contract you work on (are you outside of IR35 and do you have an SDS or independent assessment to back this status up) and what you need to do to be compliant- take professional advice!

 

More information: Understanding IR35

 

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 provides PAYE Supply & Limited company supplier services and requires all PSCs must be incorporated and accounted for via a firm of qualified / chartered accountants.

Find out more about BITE Compliance – Send in you

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However If you purchase one of our training modules separately, attend and are not satisfied with it we will refund your money.

BITE Compliance covers: IT Contracting London UK, IT Consulting London UK, IT Contract work London, IT contract Jobs London, Temporary IT work in London, Temporary IT Jobs in London, working with Freelance Interim Consultants for professional jobs and IR35 and Limited company or PSC Compliance services.

BITE also offers: Contractor marketing and advertising services, CV Marketing services,  with how to write an IT Contract CV to produce a Killer contract CV with, IT CV templates and IT CV examples. Your Job search in our London office provides access to the hidden contract job market, career coaching for contractors, and contractor career management services .

BITE is not a visa or employment agency.