When contractors provide their services through their own limited company rather than as individuals, that company is often referred to as a personal service company. The structure is widely used in the UK contracting market, and founders engaging contractors need to understand what a personal service company is and what implications it has — particularly in the context of IR35.
A personal service company — or PSC — is a limited company through which an individual provides professional services to clients, rather than working directly as a sole trader or employee. The individual is typically the director and sole shareholder. The PSC invoices the client for the work done, and the individual extracts their earnings through a combination of salary and dividends. This structure provides flexibility in how income is managed but also creates specific tax obligations and regulatory considerations.
The use of a PSC does not in itself determine the tax status of the engagement — HMRC looks at the underlying working relationship when assessing IR35, not the vehicle through which services are provided. Engaging businesses must assess IR35 status of contractors operating through PSCs above the small company threshold. Our guide to personal service companies explains how they work and what engaging businesses need to consider.