Personal Service Company

By: Patrick
14 Aug, 2023


Professional service providers most commonly use an intermediary structure, a limited company, to render their services as contractors to different clients. Such intermediary structure is referred to as a Personal Service Company. Self-employed professionals like consultants and freelancers in the industries like Business, Marketing, Finance and Accounting, IT, Engineering, Pharma and Legal, work under this arrangement. 

In this guide we will go through the various aspects relevant to a Personal Service Company and the situations where there may arise the potential application of the rules under IR35. 

What is Meant by a Personal Service Company and How Does It Work?

A personal service company mainly operates as a limited company. The company generally has a single director, the contractor / worker, who holds most or all of the shareholding in the company. 

When working through your personal service company, the provision of services is done under an arrangement between the personal service company and the client and not directly between the worker and the employer. The payments for the services are made directly to the company and not as a salary / remuneration to the worker and therefore is not subject to tax or PRSI deductions.

The director / contractor pays herself / himself a salary and draws the remaining funds as dividends out of the profits of the personal service company.

What are the Benefits of Rendering Services Through a Personal Service Company?

Many sole traders choose to provide their services through an intermediary company since it is deemed as more professional and brings the advantages of a limited company, in operating their business. 

  • Limited Liability of the Owner – The creation of a limited company, for carrying out your business, makes the personal service company a separate legal entity distinct from you. This means that your personal assets are protected from exposure to any business debts. 
  • Enhanced Credibility and Professionalism – It is possible for the contractors to engage with larger organisations since many of such businesses prefer working with contractors providing services through their limited company. Limited companies are perceived as being professional and trustworthy since they are subject to more compliance requirements under the Companies Act 2014 and the Revenue.
  • Tax Efficient Arrangement – Running the business through a personal service company creates tax advantages for the self-employed director / shareholder. There is much more flexibility in drawing a modest amount from the company as a salary and the remaining can be paid as dividend from the profits. This helps to reduce the taxes and social insurance.

Potential for Future Growth – Creating a personal service company enables the owner to build up his / her team should there be a need for hiring more people owing to the growth in business.

When Do the IR35 Rules Become Applicable?

It is important to be aware of the application of the ‘Off-payroll working’ IR35 rules. Working through a personal service company might lead to the complication of disguised employment. The rules under IR35 aim at taxing most of the company’s income as it should have been taxed as salary paid to the worker. The arrangement under the personal service company blurs the line between being a contractor or an employee leading to reduced employment responsibilities and rights, and avoidance of liabilities of tax and social insurance. 

In some cases, the workers are rendering full-time services through a personal service company to only one client and therefore are essentially entirely dependent on, or subject to control by that single employer. This is where the provisions of IR35 become applicable.

Factors Considered in Determining the Reality of the Relationship

Several factors are considered when determining the actual relationship between the contractor and the client. This includes factors such as:

  • The length of contract between the contractor and the client;
  • The client’s control over the hours worked / services rendered;
  • The provision of the required equipment by the client;
  • The entitlement of the contractor / worker to benefits like expenses or paid holidays.

Being Aware of Your Responsibilities as a Self-Employed Director

Running your personal service company gives rise to responsibilities pertaining to the company and yourself. Where, on one hand, you need to stay on top of the accounting, corporate and taxation responsibilities imposed by the Companies Registration Office (CRO) and the Revenue, it is essential to be aware of your own responsibilities as a self-employed person. 

Any income that you draw as expenses and dividends must be declared under the self-assessment scheme and filed in your personal tax return and thereby paying any tax arising on them. 

Essentials for Creating Your Personal Service Company

  • Choosing a suitable company name that is acceptable to the CRO.
  • Having a Registered Office address in place for receiving any legal correspondence and notices.
  • Providing the details of directors and shareholders of the company. This includes providing particulars like full name, date of birth, residential address etc.
  • Preparing company’s constitution documents i.e. Articles and Memorandum of Association.
  • Filing your company registration application to the CRO along with the necessary documents and the applicable fee.

How Can We Help

We, at Fusion Formations, help our sole trader clients to create their personal service company and help them in staying aware of their legal obligations. Get in touch with our Support Agent today to get to know more about our services and company formation packages.

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