What is a PTC or Personal Trading Company?

A PTC is a single member company that an individual uses for his/her trade; the individual needs to be the director of the company so that he/she can control the company which they own.

What are the advantages of a PTC?

A PTC can be used to pay the candidate, who is also the director, a director’s fee and a dividend as his/her remuneration. This has the advantage of reducing the National Insurance and PAYE burden on the candidate. The candidate can also offset business expenses against income through his company. There can also be VAT benefits through the “flat rate” scheme.  The net tax advantage to a candidate is approximately 9% of gross income.

Who can use a PTC?

To benefit from the tax advantages of a PTC the candidate must be registered as self employed with HMRC.  The rules on self employment status (often referred to as IR35) have not changed in the recent budget.

Is a PTC suitable for all types of candidates?

PTC’s will not generate the same benefits for lower paid workers as the PAYE tax rates are lower for lower paid workers.  In addition the administration charges reduce the benefit when compared to a PAYE payroll which has no administration charge. If expenses are offset this increases the benefit of a PTC. The minimum wage for PTC’s to be beneficial, assuming no expenses and a 35 hour week is £6.50.  The minimum wage for PTC’s to be beneficial, assuming £40 expenses and a 35 hour week is £6.00. PTC’s are not appropriate for construction workers due to the complication of registering each company for the Construction Industry Scheme (CIS) and the 20% deductions from all receipts from sales invoicing as a result of the CIS rules.

Certain professions are specifically excluded from benefiting from the use of PTC’s. The tax legislation requires that all Teachers and Lecturers are taxed as “deemed employees” even if they are supply or contract teachers. As “Deemed Employees” they are taxed as under the PAYE rules irrespective of the nature of their work. If the teacher has high business expenses the use of an Umbrella Company will enable them to get tax relief for their business expenses which may be beneficial.

PTC’s are not suitable for short term workers.  However, PTC’s are portable and provided a candidate uses the PTC for about 26 weeks a year on a stop start basis, possibly with many agencies, this would be a perfectly reasonable way to use a PTC.

Construction Industry Scheme (CIS) workers should be registered and taxed through the CIS scheme.