Because of the numerous financial and professional advantages, operating through a Personal Service Company (PSC) is a popular option for contractors and freelancers based in the UK who are considered to be outside of IR35. The advantages and disadvantages of contracting via a PSC are examined in our most recent article.
What advantages can a Personal Service Company Offer?
Restricted responsibility
In the event that a limited company fails, personal assets are not at danger as they are in the case of a non-limited corporation. PSCs are distinct legal entities that function independently of shareholders and directors. The company’s obligations and liabilities are not owed by the directors and shareholders; rather, they are only accountable for the value of their unpaid shares or personal guarantees. Your personal assets are safe if the company is declared bankrupt.
Authenticity
When you begin operating as a limited company, your trustworthiness and professional image will increase, which will frequently inspire greater trust from suppliers and customers. This is mostly due to the fact that incorporated businesses operate under stricter regulations than other business models, such as sole proprietorships, and are subject to more complicated accounting and reporting requirements.
Planning and tax efficiency
The most tax-effective option to work as a contractor if you are outside of IR35 is through a PSC. Directors of limited companies are able to lawfully decrease their tax obligations by paying themselves profits and salaries. Additionally, there are more options for you to use tax planning that is specific to your objectives and type of organisation.
Make a claim for reasonable business costs
You can deduct a range of business expenses while trading through a limited company, provided that the expenses are incurred solely and exclusively for the purpose of trading. If these are allowable expenses, you can deduct some of these charges to lower your taxable profit. Please check the government’s website for further details.
Safeguarding the name of your business
The company name is legally protected and cannot be used by anyone else once it has been registered as a limited company.
Selling your small business
Since your limited business is a distinct legal entity, selling it is an easy process. You do not need to consult anyone else before selling if you are the sole shareholder or director because only you will need to approve the transfer of the shares to the new owner.
Different share classes
Different share classes may be exercised, which may be useful if you want to divide ownership of the business or draw in investors. It is advantageous for tax planning as well.
What are the disadvantages of a Personal Service Company?
Advantages and disadvantages always exist, as with anything. To help you make an informed choice, it is appropriate to take into account any potential drawbacks of using a PSC.
Personal Service Companies must be incorporated
It can take a while and be difficult to incorporate a limited company, but registering your PSC with the Companies House is required by law. In addition, a £12 incorporation charge must be paid.
Companies House will display your PSCs records
Your PSCs information, including yearly reports, records, and director and shareholder details, is public knowledge because it is registered with Companies House. Anyone can view and access this information.
Be ready to handle more administrative tasks
In order to abide with UK tax rules, you, as a limited company director, must follow stringent record-keeping and accounting standards. You have to fill out a confirmation statement and file annual accounts with Companies House and HMRC. If you make any changes to your company details, you must contact the firm’s house right away.
Accounting is not always cheap
Depending on how much of the administrative work you want them to handle, hiring an accountant to finish your company’s accounting may prove to be costly. It is important to remember, though, that accounting costs are deductible from business taxes and can lower corporate tax obligations.
Check out our directory of limited company accountants
Not all of our attention is on umbrella firms! For a helpful list of all contractor accountants who are accredited by the FCSA or Professional Passport, check out our database of contractor accountants.
Top Ten Umbrella Companies
Check out our list of the top 10 umbrella companies if you’re searching for a reliable provider. All of them hold accreditation from Professional Passport or the FCSA. Additionally, several are now offering specials, so it’s definitely worth checking them out!
