More than 48% of UK contractors are using some form of Personal Service Company (PSC) solution to manager their affairs, whether managed by themselves or by a third party. That’s according to new research undertaken by FPS Group, the Umbrella Company administrator for Contractors, and, the jobs board for freelance professionals.

Perhaps more surprisingly, despite the recent high-profile public backlash against tax avoidance, 52% of survey respondents still plan to be payrolled using some form of PSC solution in their next role.

The use of PSCs is under scrutiny from all angles. Following the prominent Times investigation into individual tax avoidance, cracking down on seemingly legitimate schemes is a top priority of both government and the media, and HM Revenue and Customs has promised to increase ten-fold the number of investigations over the next year.

Matt Huddleston, Chief Financial Officer, FPS Group, says: “Contractors should be wary of using PSCs, as there is considerable potential for challenge now and further down the line.

“Contractors and recruiters must be very clear on whether their tax arrangements are in line with all relevant legislation including IR35 and Managed Service Company. PSCs can be a valid means of running tax affairs, but only for long-term contractors intentionally setting out to do business on their own account and requiring a degree of professional support to do so. For many contractors this is simply not the case.”

Huddleston advises: “PAYE umbrella solutions are the most appropriate remuneration solution for the majority of recruitment companies and for contractors who want to be paid the correct net pay, are risk averse, and do not want the spectre of a future challenge by HMRC looming over them.”