Personal Service Company – Tax returns
Answering the question about PSC (personal service companies) when I complete my personal tax return. Do I have an IR35 issue when I tick this box as a “yes”. Is it anything to worry about? Or is it just a simple “yes” answer? What is the definition of a PSC?
Ticking ‘yes’ to the PSC (personal service company) question on your personal tax return does not mean that you will have an IR35 issue. It is nothing to worry about as the term ‘PSC’ simply describes the type of company you have and is a separate matter to the issue of IR35 compliance.
A Personal Service Company is an HMRC description which helps them define what kind of business you are and it’s set-up so that they can make the relevant tax deductions on your income. IR35, on the other hand, is specifically about whether work done by an individual complies with the criteria of being ‘employed’ or not. For IR35 purposes being deemed a PSC doesn’t make any difference to the compliance criteria which must be met. Compliance is only concerned with whether the services you carry out for your client are done in a way which could be deemed as ‘self-employed’ and therefore outside IR35 or ‘employed’ and inside IR35. If you are deemed to be ‘employed’ then your tax payable will be determined by the Deemed Salary calculation whether you are a PSC or not.
The key point for a contractor with a Limited Company is to make sure that you are clear on where you stand. This is the safest way to avoid potential IR35 concerns.
What is the definition of a PSC?
The term ‘PSC’ was introduced by HMRC around the same time as IR35 came into force. It is used primarily to describe the one person Limited Company type that many contractors have. Pre-IR35 Limited Company contractors were more or less automatically deemed to be ‘self-employed’ for tax purposes. IR35 changed this and all types of contractor have come under increasing HMRC scrutiny. The definition has been redefined over the years but generally agreed elements of a PSC are the following:
- You provided services for a client or clients.
- There was a contract between the client and the company of which you were a shareholder during the tax year.
- All or most (more than 50%) of the company’s revenue was earned through services carried out personally by the shareholders of the company.
If your business operation has all of these characteristics then it is most likely that yours is a PSC.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.