Personal service company (PSC) - What is a personal service company?
A personal service company is a type of limited company used by self-employed people, and contractors.
Unsure of if you want to register as a sole trader, limited company, or partnership? Read more about how to choose the right business structure on our blog.
Personal service companies were introduced by HMRC when the IR35 legislation came about in the year 2000. Although there is no formal definition of a PSC, it is commonly used to describe limited companies that are owned by a single person (or sometimes a very small group of people).
What is the difference between a personal service company and a sole proprietorship?
Although both types of companies normally have a single owner or director, the difference is how they register their company in the UK.
Sole traders do not need to register their business as a sole trader with HMRC unless they have earned more than £1,000 from self-employment in the previous tax year. Sole traders are responsible for the company’s debts and you can use personal bank accounts for business earnings.
On the other hand, limited companies (including personal service companies) are required to register their business with HMRC, regardless of income.
If you choose a limited company, this means that the business is completely separate from the person who runs it, and the finances are separate from the owner’s personal finances. A limited company will also have shareholders or guarantors, although it is normally yourself in the case of a PSC.
Another difference is how the company’s pay tax. A sole trader will declare self-employment income on their personal tax assessment. A limited and personal service company will need to start paying corporation tax as soon as they are registered.
Both company types may also need to pay VAT and submit quarterly VAT returns to HMRC depending on income.
It is up to the business owner how they wish to set up their business. If you are a sole trader, you are personally responsible for any debts, whereas a limited company is not. However, sole trader daily operations and tax are slightly simpler than a limited company.
How do I set up a personal service company?
You set up a personal service company just as you would a limited company in the UK. You will need to choose a business name (keep in mind that “Ltd.” will be at the end), decide who the shareholders will be (normally yourself in the case of a PSC), prepare documents, and apply through the UK government website.
It costs £12 to apply, and you will be registered for corporation tax at the same time. It normally takes around 24 hours from when you apply to be fully registered as a limited company.