With UK limited companies there are two completely different answers to the question “what is a PSC for limited companies?” The two definitions of PSC you might encounter are:
- Personal Service Company – a company setup for one individual to get paid for a contract or agency work.
- Person with Significant Control – normally the shareholders and investors who control what a business does.
To make matters even more confusing the UK government has recently changed the rules around both types of PSC for limited companies. To try and clear things up we will give you a quick breakdown of what you need to know about each type of PSC for limited companies and what has changed.
Personal Service Companies
There has been a trend over the last few years of people doing company formations in order to get paid for contract work. This used to be commonly done by highly paid IT contractors and management consultants but recently couriers, HGV drivers and Nurses have been doing it as well. In most cases they have been asked to setup a personal service company by an agency in order to get work.
The advantage of doing this for the agency is that they are not employing anyone, just contracting a limited company. This means they do not have to pay holiday or sick pay, don’t have to make National Insurance or pension contributions and can fire people anytime they like. The advantage for the people they are hiring is that they can pay less tax.
The government doesn’t like personal service companies because they miss out on a lot of tax revenue so they have been trying to clamp down on them. Their most recent way of doing this is by making the IR35 test apply to all public sector workers. This test basically asks whether the person using a personal service company should really be an employee and paying normal tax or not. IR35 has been around for a while but it used to be down to HMRC to make a judgement on individual cases. The new rules say it is down to the agencies or public sector bodies employing someone through a personal service company to make that decision.
The result of this is that most of the agencies who were forcing people to use personal service companies are now telling them to stop. The agencies don’t want to be responsible for doing the IR35 assessments and so the easiest thing for them is to shift the way people are paid. They are now generally recommending that people use umbrella companies instead.
Person with Significant Control
Since April 2016 all limited companies have had to make a statement as to who their person with significant control is and to keep a PSC register. The person with significant control rules were introduced to try and stop people hiding behind limited companies to avoid tax and to do things like money laundering. A common tactic for people who were up to no good was to use nominee directors and shareholders. These were people unconnected with the day to day running of a company who would be listed as the directors and shareholders in order to disguise who is really involved.
Now companies have to confirm who the people behind a company really are by listing the people with significant control. A person with significant control is normally anyone with more than 25% shareholding in the company and the company directors. However, it can also include investors and anyone who has regular input into the daily running of a company.
The latest change on people with significant control is that rather than confirming who the people are once a year it now has to be done whenever there is a change. So, if a new company director or shareholder is added then the list of people with significant control has to be updated with the government. The company will also have to update their PSC registers to reflect these changes.