Why contractors use a limited company
- Limited liability — your company, not you, carries the business risk
- Control over income — take salary and dividends when it suits your tax position
- Pension planning — employer contributions are highly tax-efficient
- Credibility — many agencies and clients prefer (or require) a limited company
The trade-off is admin: a company files more than a sole trader. That’s exactly what a contractor accountant is for.
IR35 in plain English
IR35 asks a single question: strip away the company, and would you look like the client’s employee? If yes, the engagement is inside IR35 and that income is taxed much like employment. If you’re genuinely in business on your own account — multiple clients, your own equipment, real financial risk, the right to send a substitute — you’re outside. For medium and large private-sector clients (and the public sector) the client determines your status; with small clients, your company does. Status is assignment-by-assignment, so keep contracts and working practices aligned.
How you pay yourself (outside IR35)
The classic contractor approach: a small salary (using allowances and protecting your State Pension record) plus dividends from company profits, with employer pension contributions mopping up surplus tax-efficiently. Inside IR35, most of the fee becomes deemed employment income, which largely removes the dividend advantage — another reason status matters.
What you'll file each year
- Annual accounts and a confirmation statement at Companies House
- CT600 Corporation Tax return with HMRC
- Payroll (RTI) for your salary
- VAT returns if registered (many contractors register voluntarily)
- Your personal Self Assessment for dividends
We bundle the accounts and CT600 at a fixed £399 + VAT, add your Self Assessment at £199 + VAT, and handle payroll and VAT alongside. Call 0114 327 1480.