Should a contractor use a limited company?
Most contractors work in one of three ways: as a sole trader, through an umbrella company, or through their own limited company. A limited company pays corporation tax on its profit. You then take money out as a small salary and dividends. That can mean less tax overall, but there is more admin and the company must meet its own deadlines.
| Item | Figure |
|---|---|
| Corporation tax on profits up to £50,000 | 19% |
| Corporation tax on profits over £250,000 | 25%, with marginal relief in between |
| Dividend allowance | £500 |
| Dividend tax rates | 10.75% basic, 35.75% higher, 39.35% additional |
Dividend rates rose by 2 percentage points in the basic and higher bands from April 2026, so last year’s plan may no longer be the best one. We review your salary and dividend mix each year. Our guide on sole trader vs limited company explains the trade-offs, and we can set up the company for you if it makes sense.
What is IR35 and who decides?
IR35, also called the off-payroll working rules, is there to stop people working like employees through their own company while paying less tax than an employee would. If a contract is inside IR35, the income is taxed much like a salary, with income tax and National Insurance taken off before it reaches you.
Who decides depends on the client. For public sector clients and medium or large private sector clients, the client decides your status and must give you a status determination statement with its reasons. For small private sector clients, your own company decides. HMRC looks at the real working arrangement, such as who controls how the work is done, whether you can send a substitute and whether you are treated like part of the client’s staff.
What does a contractor accountant do each year?
- 1
Keep the books
We keep your records up to date in Xero, QuickBooks, Sage, FreeAgent or a spreadsheet, so you always know what the company can afford to pay you.
- 2
Run payroll
We set up your director’s salary and file the payroll returns through our payroll service.
- 3
Handle VAT
If your taxable turnover goes over £90,000 in 12 months you must register for VAT. Keep an eye on this if your day rate is high. We register you and file returns through our VAT service.
- 4
File the year-end
Accounts go to Companies House within 9 months of the year end, corporation tax is paid 9 months and 1 day after it, and the company tax return is due within 12 months. See our limited company accounts service.
- 5
Do your own return
As a director taking dividends, you will usually need a personal Self Assessment return too.
What expenses can a contractor’s company claim?
The company can pay for costs that are wholly and exclusively for the business. For most contractors that means things like a laptop and software, professional insurance, membership fees linked to your work, training for your current role, business phone costs, accountancy fees and a share of costs when you work from home.
Travel to a client site can be claimable in some cases, but the rules are strict and depend on how long you work there and your IR35 position. Personal costs paid by the company may be taxable on you. We check before you spend, not after.
Some mistakes come up again and again with contractor companies, and each is easy to avoid with a little planning:
- Taking money out as dividends when the company has not made enough profit to pay them
- Treating the company bank account like a personal one, which builds up a director’s loan to repay
- Forgetting to set aside corporation tax, which is due 9 months and 1 day after the year end
- Missing the confirmation statement, which must be filed at least once every 12 months
- Not keeping a copy of the status determination statement for each contract
We send you a short reminder before each deadline and tell you what the company can safely pay you. If you are between contracts, we can also talk through what that means for your company and your own tax.
How much does a contractor accountant cost?
Our fixed fees for limited companies start from £150 a month. That covers your company accounts and tax return, payroll for your salary and advice through the year. After a free 20-minute chat, you get the exact price in writing within one working day. It stays fixed for 12 months unless your business changes. Details are on our fees page. If you already have an accountant, switching can happen at any time of year.
Common questions
Do you give IR35 contract reviews?
We can look at your contract and working practices and give you our view on the main IR35 factors. Where your client decides your status, we help you understand and, if needed, challenge the decision.
Is an umbrella company better than a limited company?
An umbrella is simpler, with no company to run, but you are taxed like an employee. A limited company usually suits contracts outside IR35. We can compare both for your situation.
Do I need to register for VAT as a contractor?
You must register if your taxable turnover goes over £90,000 in the last 12 months, or you expect it to in the next 30 days alone. You can also register voluntarily if it suits your clients.
Can you work with me if I contract outside Liverpool?
Yes. Many contractors work remotely or travel. We work by phone, video and email, and you are welcome at our Galloway Street office by appointment.
