ACCA Advanced Taxation (ATX) Practice Exam

What is the applicability of the special personal service company (PSC) rules?

1. Only to large corporations

2. Only to sole traders

3. To specific contracts

4. All business contracts

The correct answer is: To specific contracts

The special personal service company (PSC) rules are designed to apply to specific contracts, particularly those related to the provision of personal services through a company structure. This means that the regulations focus on situations where individuals set up a limited company to provide their services, often in a contracted or freelance capacity. The PSC rules are primarily concerned with ensuring that individuals who supply services in this manner do not exploit the benefits of being incorporated to avoid taxation that would otherwise apply if they were acting as sole traders. As such, they are targeted towards contracts where a service is provided personally, rather than general business operations or broader corporate activities. This focus on specific contracts differentiates the PSC rules from more general tax regulations that might apply to all business contracts or larger corporations. Thus, the applicability is limited to scenarios where personal services are contracted, which makes this the correct answer in understanding the scope and intent of the PSC regulations.