Clients who engage in the provision of services in the construction, engineering, aviation, shipping, computer software, finance can get significant tax saving benefits through the establishment of a personal service company.
How to characterize Personal Service Company
- The shareholder need to incorporate a company, decides the name of the company, appoint the director and company secretary, decides how many shares should be issued and where the registered office should be,
- The company need a business bank account under the company’s name,
- The company need a “contract for services” with the employment agency, the contract should not go through a management company,
- The money need to sent by the agency direct to the company’s bank account, but not through an intermediary or management company,
- The shareholder and director need to decide how much of the gross income should be considered as salary and how much declared as dividends,
- The director need to confirm and sign the annual accounts and other necessary documents,
- The company need to required all insurances on the company’s name.
Advantages of setting up a Personal Service Company:
- A PSC is the most tax effective way to work if you are outside IR35,
- You can ask for a wider range of expenses,
- A PSC will give you admission to the flat rate VAT scheme.
- You keep total control of your financial affairs. Means that you do not have to risk your money with third party administrator.
Disadvantages of setting up a Personal Service Company:
- Some of the paperwork can be complicated,
- A PSC can be costly if you contract for a very short period of time,
- You will be responsible for issuing invoices,
- There is a lot to set up, for example, a business bank account.
- A PSC is not ideal for contracts less than £25 thousands per year.