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Recruiting PSC Contractors - What Recruiters Need to Know

If your recruitment agency engages contractors, there are usually three main options. You can engage them directly through agency PAYE, they can be employed by an umbrella company, or they can trade through their own Limited company, often called a PSC. In this article we’ll look at this last option; here’s what you need to know when engaging contractors through their own PSC.

What we mean by a PSC

PSC stands for Personal Service Company, and it refers to small Limited companies used by contractors to run their contracting businesses. Typically, the contractor will be a director and shareholder of the PSC. It may have one or two employees performing admin functions to free up the contractor’s time for paying work and there may be a small number of other shareholders, but the majority are “one person” companies which are owned and run by the contractor themselves.

Why do contractors use them?

There are many reasons why a contractor might want to trade through a PSC, including the opportunity to engage with clients as an independent business, control of their business finances, a wider range of expenses to claim and the tax planning opportunities available.

PSCs are better suited to higher earning contractors, who are better placed to make the most of tax planning, who are comfortable with the responsibilities of a company director, and usually work outside the scope of IR35.

IR35 status

IR35, also known as the Intermediaries Legislation, is intended to stop so called “disguised employees” getting a tax advantage by working through an intermediary, like a PSC.

Where contractors are engaged through a PSC, the end client must determine whether they fall inside or outside IR35. It’s important that this is done correctly, as there are risks to the client, your recruitment business and the contractor if their IR35 status is not correct. Most clients will need expert help to correctly determine IR35 status. 

If your PSC contractors are inside IR35

Where PSC contractors are inside IR35, PAYE tax and National Insurance must be deducted from any payments you make to their PSC. Additionally, employer’s NI is due on all these payments. However, in practice most contractors opt for umbrella company employment, as they’ll take home roughly the same amount of money and they won’t need to be fund their PSC with taxed income. 

Marketing roles to PSC contractors

IR35 assessments need to include the circumstances and working practices of the individual contractor, but few contractors will be willing to accept a role without knowing what their take home pay will be. Clients can help you over this paradox by completing a provisional “role-based assessment” allowing you to advertise the role as “inside” or “outside” IR35. An individual determination would then need to be completed once the contractor has accepted the role.

PSC contractors will obviously prefer to work outside IR35, and most will switch to umbrella employment if they’re inside. It makes sense to help and encourage your clients both to assess IR35 status correctly, and to amend their own working practices to make it easier to safely hire contractors outside IR35. Once again, most clients will need IR35 compliance experts to help them with this.

Should you advise your contractors to use PSCs?

Becoming the director of a Limited company, even one as small and simple as a PSC, is a large personal commitment. It can be extremely rewarding, but each individual director needs to understand what they’re taking on and be comfortable with it. We would advise anyone who’d considering “going limited” to discuss their specific situation with a specialist contractor accountant before making any decisions.

If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email

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