Personal service companies





A Personal Service Company (PSC) is a limited company with just one individual shareholder/director. The PSC contracts with the hirer to supply that individual’s services. PSCs were originally intended to enable genuine freelancers to limit their business risk. When used legitimately, they can bring flexibility, tax efficiency and limits to legal liability. However, using a PSC also enables organisations to escape their employment responsibilities including National Insurance, PAYE tax and statutory employment rights. For this reason, there is an ongoing government clampdown on their use, beginning in the public sector, but extending to the private sector from April 2020.



In April 2017, the relevant tax rules (known as IR35) were changed in the public sector. IR35 is tax legislation that is designed to combat tax avoidance. It is triggered whenever a worker supplies their services to clients via an intermediary in circumstances where PAYE tax and National Insurance would have been deducted if the intermediary had not been used. Under new rules, it is the responsibility of the public sector hirer of the PSC’s services to assess whether the PSC is entitled to be taxed "off-payroll". If not, they must deduct PAYE tax and National Insurance at source. In other words, responsibility for the correct payment of tax and National Insurance has shifted to the public sector organisation and away from the individual.


From April 2020, these reforms are to be extended to the private sector for medium-sized and large businesses. From that date, private sector organisations with “off-payroll” staff will need to deduct tax and National Insurance at source from workers who supply their services through a PSC unless they are satisfied that the PSC is a genuinely self-employed business. 


HMRC has devised an online Employment Status Indicator Tool.

www.tax.service.gov.uk/check-employment-status-for-tax