What is a personal service company?
Answered 11 March 2026
What is a Personal Service Company?
What the law says
The term "personal service company" (PSC) does not have a single statutory definition in UK tax legislation. Instead, the legislation defines the conditions under which a company acting as an intermediary falls within the IR35 rules.
Under ITEPA 2003, s.49, the intermediaries legislation (IR35) applies where:
- an individual ("the worker") personally performs, or is under an obligation personally to perform, services for another person ("the client");
- the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party ("the intermediary"); and
- the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client (or holder of an office under the client).
Where the intermediary is a company, the additional conditions under s.51 are that the intermediary is not an associated company of the client, and either:
- the worker has a material interest in the intermediary (broadly, more than 5% of ordinary share capital, distribution rights, or winding-up assets); or
- a payment or benefit is received or receivable by the worker directly from the intermediary and can reasonably be taken to represent remuneration for services provided to the client.
HMRC guidance / practice
HMRC describes a personal service company (PSC) as a limited company through which a worker provides their services to clients, typically where the worker is the sole director of that company. In the IR35 glossary, a PSC is described simply as "a limited company, commonly known as a personal service company (PSC)" and is one of three types of intermediary through which a worker can provide services (the others being a partnership and an unincorporated body).
The key characteristic is that the worker and the service company are effectively one and the same — in contrast to a composite service company, where the worker is an employee and only one of several shareholders.
PSCs typically supply a client with the services of one person — the owner/director of the PSC.
The purpose of the IR35 rules is to counter avoidance whereby a service company is set up to provide the services of a single worker to a client, where the worker would be an employee of the client but for the service company. Without IR35, the client makes payments to the company rather than the individual without deducting PAYE or NICs, and the worker then extracts money as dividends rather than salary, avoiding NICs. As the original IR35 press release put it, the rules are aimed at engagements with "essential characteristics of employment" that are "disguised through use of an intermediary – such as a service company or partnership".
A PSC must consider, in order: (1) the agency legislation; (2) the managed service company (MSC) legislation; and (3) the IR35 legislation.
Citation sources
Agencies will often contract with a Personal Service Company (PSC) to supply a worker to the client of the agency. The agency will have to make a return to HMRC if it makes a payment to (i) the worker, (ii) the PSC, or (iii) any third party - in connection with the services provided by the worker and supplied by the PSC. In this situation, it is the agency and not the PSC that must make the information return. PSCs themselves do not normally have an obligation to send HMRC the information return
Part 2 Employment income: charge to tax Chapter 8 Workers' services provided through intermediaries to small clients Application of this Chapter Engagements to which this Chapter applies 49 1 This Chapter applies where— a an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“ the client ”), aa the client is not a public authority, b the services are provided not under a contract directly between the client and the worker
Intermediaries such as service companies can be set up to provide the services of a single worker to a client, where the worker would be an employee of the client if it were not for the service company. The use of service companies in this way allows the client to make payments to the company rather than the individual without deducting PAYE or NICs. The worker then takes the money from the service company in the form of dividends rather than salary, again avoiding NICs. In order to counter such
The agency legislation takes precedence over the managed service company and Intermediaries legislation (sometimes known as IR35). If the agency legislation does not apply, or remuneration paid to the worker from any party in consequence of providing the services is not fully taken into account under the agency legislation, then the PSC must go on to consider if the provisions of the managed service company legislation apply. PSCs which do not meet the definition of a managed service company mus
rough: A Limited company, commonly known as a personal service company (PSC). See ESM9010 for the conditions that must be satisfied for the legislation to apply to a limited company. A partnership. See ESM9010 for the conditions that must be satisfied for the legislation to apply to a partnership. An individual through a non-corporate relationship. CEST refers to this as an ‘unincorporated body’. Off-payroll working (IR35) – This is a reference to the Intermediaries Legislation (IR35), the 2017
happen in practice? In the personal service company situation, the worker and the service company are effectively one and the same. That is not the case in the composite service company situation where the worker is an employee and only one of several shareholders. In those circumstances, you will have a worker/service company contract and it is even more essential that you seek the views of the end user where it is suggested that the worker has a right of substitution.
Workers sometimes provide their services through a limited company, of which they are the sole director. This company is termed a ‘Personal Service Company’ (PSC). We do not consider that engaging a worker via a PSC alters the VAT treatment of a supply by an employment bureau. Where a PSC supplies the services of an individual to the bureau, that bureau is acting as a principal in receiving and making a supply of staff as it engages the PSC to make its onward supply to the client. Conversely, wh
Part 2 Employment income: charge to tax Chapter 8 Workers' services provided through intermediaries to small clients Application of this Chapter Conditions of liability where intermediary is a company 51 1 Where the intermediary is a company the conditions are that the intermediary is not an associated company of the client that falls within subsection (2) and either— a the worker has a material interest in the intermediary, or b the payment or benefit mentioned in section 50(1)(b)— i is receive