LRD guides and handbook May 2018

Law at Work 2018

Chapter 2

Personal service companies




[ch 2: page 42]

A Personal Service Company (PSC) is a limited company with just one shareholder/director. It contracts with the hirer to supply the individual’s services. PSCs were originally intended to enable genuine freelancers and the self-employed to limit their business risk. When used legitimately, the individual can benefit from flexibility, tax efficiency and limits to their legal liability. However, using a PSC also enables hiring organisations to avoid employment responsibilities including National Insurance, PAYE and all statutory employment rights, such as the National Minimum Wage, and holiday pay. For this reason, there is an ongoing government clampdown on their use.


In April 2017, a significant change was made to the tax rules, to target the abuse of PSCs in the public sector as a way of avoiding tax and National Insurance. Under the new rules, responsibility for deciding whether tax and National Insurance should be paid (and the risk of getting it wrong) has shifted from the PSC onto the public sector hirer. In Autumn 2017, the government began consulting on whether to implement the same reform in the private sector.