PSC (Personal Service Company)
A limited company owned by a contractor to provide their services — the structure IR35 legislation targets.
A Personal Service Company (PSC) is a limited company set up by a contractor to provide their services to clients through agencies. The contractor is typically the sole or majority director and shareholder.
The PSC model allows contractors to extract income tax-efficiently — taking a low salary (below NI thresholds) and withdrawing remaining profits as dividends, which are taxed at lower rates and not subject to NI.
IR35 legislation specifically targets PSCs. If a contractor's engagement would be employment if the PSC did not exist, HMRC deems the income as employment income — taxed under PAYE, removing the dividend tax advantage.
Contractors who are inside IR35 or who prefer not to run a company often use an umbrella company instead of a PSC, trading tax efficiency for simplicity.