Personal Service Company (PSC) Guide
What is a Personal Service Company (PSC)? How contractors operate through a limited company, IR35 interaction, salary/dividend splits, and umbrella comparison.
In one sentence
A Personal Service Company (PSC) is a UK private limited company formed by an individual contractor to sell personal professional services to clients.
Quick answer
- Corporate structure created by contractors to provide professional services to clients
- Offers highest tax efficiency via salary and dividend extraction when Outside IR35
- Subject to UK Corporation Tax (19% to 25%) on net trading profits
- Subject to IR35 Off-Payroll Working rules to determine employment status
What is a Personal Service Company (PSC)?
A Personal Service Company (PSC) is a term widely used by HMRC, tax advisors, and recruiters to describe a UK private limited company created by an individual contractor, freelancer, or consultant to sell their personal professional services to end-clients or agencies.
In a typical PSC setup, the contractor is the sole (or majority) shareholder, acts as the sole company director, and performs the work required by client contracts.
How a Personal Service Company operates
Unlike an employee who receives wages directly from an employer, a PSC operates as a separate corporate legal entity:
- Client Contracting: The end-client or recruitment agency signs a business-to-business (B2B) contract with the PSC, not with the individual contractor.
- Invoicing & Revenue: The PSC invoices the client for work completed (adding VAT if VAT-registered).
- Corporation Tax: The PSC pays Corporation Tax (19% to 25%) on its taxable profits after allowable business expenses and director salary.
- Director Income Extraction: The contractor extracts funds from the PSC through a combination of a tax-efficient director salary and dividend distributions.
PSC vs Umbrella Company vs Sole Trader
Contractors in the UK usually choose between three main operating models:
| Feature | Personal Service Company (PSC) | Umbrella Company | Sole Trader |
|---|---|---|---|
| Legal Structure | Limited Company (separate legal entity) | PAYE employee of Umbrella firm | Self-employed individual |
| Tax Efficiency | Highest (Salary + Dividend combination) | Standard PAYE (Income Tax & Employee NI) | Income Tax & Class 4 NI on profits |
| IR35 Impact | Applies to Outside IR35 contracts | Inside IR35 compliant (standard PAYE) | Rarely accepted for corporate contracts |
| Admin & Filings | Statutory Accounts, CT600, CS01, Payroll | Zero admin (timesheet submission only) | Annual Self Assessment (SA100) return |
| Liability Protection | Limited liability protection | Covered under umbrella insurance | Unlimited personal financial liability |
The impact of IR35 (Off-Payroll Working Rules) on PSCs
The IR35 legislation was introduced by HMRC to ensure that contractors working through a PSC who operate like disguised employees pay similar Income Tax and National Insurance as traditional employees.
- Outside IR35: The contract reflects genuine self-employment. The PSC invoices the client gross, pays Corporation Tax on profits, and extracts dividends tax-efficiently.
- Inside IR35: The contract is deemed to be employment. The fee-payer (agency or client) must deduct PAYE Income Tax and Employee NI before paying the PSC net fee.
For public sector and medium/large private sector clients, the end-client is legally required to issue a formal Status Determination Statement (SDS) determining whether the engagement is inside or outside IR35.
PSC Register vs Personal Service Company: Don't mix them up
Be careful not to confuse two distinct UK corporate terms that share the acronym "PSC":
- Personal Service Company (PSC): The contractor business structure described on this page.
- Person with Significant Control (PSC): A Companies House term referring to anyone holding over 25% of shares or voting rights in any UK company, reported on your annual Confirmation Statement (CS01).
Is a Personal Service Company right for you?
A PSC is usually the most tax-efficient structure for UK contractors earning over £35,000 to £40,000 annually, provided your client contracts are outside IR35.
Read our guide on IR35 rules and off-payroll working or see how our specialist contractor accounting services helps you run your PSC with full tax compliance.
Setting up or running a Personal Service Company?
Book a 20-minute call with an experienced UK contractor accountant. We will review your contract IR35 status, salary/dividend split, and company accounting setup.
Book a call →Need help with this?
Book a call and we will explain the next steps clearly.