Contractors & freelancers
Contractor Accountant and IR35 Advice
Limited company contracting still works well — provided the status position is sound and you are taking money out in the right order.
For most contractors the two questions that matter are whether an engagement falls inside IR35, and how to extract profit efficiently once it does not. Everything else — the accounts, the returns, the VAT — is process. We handle the process and spend the time on the two questions that change what you keep.
We act for IT contractors, engineers, management consultants, medical locums and creative freelancers, working through their own limited companies or as sole traders, across London and the home counties.
IR35 status reviewed
Contract and working practices, not just the paperwork.
Salary and dividend planning
The split that leaves you with the most, reviewed each year.
Company running costs
Accounts, corporation tax, VAT, payroll and confirmation statement.
Closing the company
Including whether a members' voluntary liquidation is worth the cost.
IR35: what actually decides it
Status turns on how the engagement works in practice, not on what the contract says. The three things tribunals keep returning to are control — who decides what, how and when the work is done; substitution — whether you could genuinely send someone else; and mutuality of obligation — whether the client must offer work and you must accept it. A well-drafted contract that does not match reality is worth very little.
For engagements with medium and large private-sector clients, and all public-sector ones, the client determines status and issues a Status Determination Statement. You can dispute it, and the client has to respond. For small clients the responsibility stays with your company — which means the risk does too.
Taking money out of the company
The usual structure is a modest salary — enough to keep the National Insurance record intact without triggering much liability — with the balance as dividends. The right level shifts with each year's thresholds and with corporation tax marginal rates, so it is a decision to revisit annually rather than set once. Where a spouse genuinely works in the business, paying them for that work is legitimate; giving them shares purely to use their allowances invites the settlements legislation.
- Salary set against the current NIC thresholds
- Dividends planned across the tax year, not declared in a rush in March
- Pension contributions from the company — often the most efficient route left
- Directors' loan accounts kept out of overdraft, to avoid the s455 charge
When the contracting stops
If you take a permanent role or retire, the company has to be closed properly. Where reserves are modest, striking off is quick and cheap. Above around £25,000 of reserves, a members' voluntary liquidation usually gets the money out as capital rather than income, which can be a substantial difference — but it carries a liquidator's fee and anti-avoidance rules apply if you start contracting again within two years. We will tell you which route is worth it on your numbers.
Who decides your status, and why it matters
The off-payroll rules moved the decision. Where the end client is medium or large, the client decides whether the engagement is inside or outside IR35, issues a determination, and carries the liability if it is wrong. Where the end client is small, the decision stays with your own company — and so does the risk.
So the first question about any contract is not "am I outside" but "who is making that call". A determination you disagree with can be challenged, and the client has to respond with reasons — a right very few contractors use.
Umbrella or your own company
Inside-IR35 work through your own company leaves you with a company that is doing very little, and for some people an umbrella is genuinely simpler. But the comparison is often presented badly.
An umbrella rate has to cover employer's National Insurance, the apprenticeship levy, holiday pay and the umbrella's margin, all of which come out of the assignment rate before you are paid. A quoted umbrella rate and a quoted limited-company rate are not the same number and cannot be compared directly.
If you have a mix of inside and outside work, keeping the company usually wins. If everything is inside for the foreseeable future, it often does not. It is worth reviewing annually rather than deciding once.
Reading an umbrella payslip
If you work inside IR35 through an umbrella company, the payslip is the document people find hardest to interpret — and the confusion is structural rather than a matter of arithmetic. It arises because two different numbers both get called your rate.
The assignment rate is not your gross pay
The rate agreed with the agency is what the agency pays the umbrella. Out of it, the umbrella must fund employer’s National Insurance, the apprenticeship levy where it applies, employer pension contributions and its own margin. What is left becomes your gross pay, and only then is income tax and employee’s National Insurance deducted. So the figure you were quoted was never a figure you could take home, and a comparison against a day rate outside IR35 that ignores this is comparing two different things.
Holiday pay is your money either way
Holiday pay is funded from the same assignment rate. It is either rolled up and paid with each payment, or retained and paid when you take leave. Both are legitimate; what is not is retaining it and never paying it out. If your payslip shows holiday pay accruing, check that you are actually receiving it — unclaimed accrued holiday pay has been a persistent problem in the sector.
Read the reconciliation, every time
A compliant umbrella gives you a reconciliation showing the assignment rate at the top and every deduction between it and your gross pay. If you cannot see that breakdown, ask for it. Arrangements that will not show you the whole chain, or that promise a take-home percentage well above what the arithmetic allows, are the ones that later turn out to have been something other than they appeared — and the tax consequences of those fall on the worker, not the promoter.
Frequently asked
Is my contract inside or outside IR35?+
It depends on the working practices as much as the wording. We review both, and where the position is finely balanced we say so rather than giving false comfort — the cost of being wrong falls on whoever bears the liability, which for small clients is your company.
How much salary should I take?+
Usually enough to secure a qualifying year for the state pension while keeping employer and employee National Insurance minimal, with the rest as dividends. The exact figure moves with the thresholds each April, so we set it as part of the year-end planning rather than leaving it fixed.
Can I claim my travel to a client site?+
Travel to a temporary workplace is generally allowable; travel to a permanent one is not. An engagement expected to last more than 24 months at the same site makes it permanent, and the clock starts when the expectation arises, not when you pass 24 months.
Do I need to register for VAT?+
Only once you pass the threshold, though many contractors register voluntarily because their clients can recover it and it makes the business look established. Whether the flat rate scheme helps depends on your costs — for most contractors the limited cost trader rules removed the advantage.
Who decides whether I am inside IR35?+
The end client, if it is medium or large — it must issue a status determination and it carries the liability for getting it wrong. If the end client is small, the decision and the risk stay with your company. You can formally challenge a determination and the client has to respond with reasons.
Is an umbrella better than my own company?+
It depends on the mix of work, and the rates are not comparable as quoted. An umbrella rate absorbs employer's NI, the apprenticeship levy, holiday pay and a margin before you are paid. With any outside-IR35 work the company usually still wins; with everything inside for the foreseeable future, often not.
Why is my take-home so much less than the day rate I agreed?+
Because the agreed rate is the assignment rate paid to the umbrella, not your gross salary. Employer’s National Insurance, the apprenticeship levy, employer pension and the umbrella’s margin all come out of it before your gross pay is calculated — and your own tax and National Insurance come off after that. It is not usually an error. It is why an inside-IR35 assignment rate and an outside-IR35 rate are not comparable figures.
Should I use an umbrella or my own limited company?+
If the engagement is inside IR35, an umbrella is usually simpler and the company gives you little advantage for that work. If you have outside-IR35 engagements, a company generally remains worthwhile. Many contractors have both at once, which is fine — what matters is that each engagement is treated according to its own status determination rather than by a single blanket decision about how you prefer to work.
I have been offered a scheme with 85% take-home. Is that legitimate?+
Almost certainly not. Arithmetic sets a ceiling on what can be paid out of a given rate after employment taxes, and figures well above it generally mean part of the payment is being characterised as something other than earnings — typically a loan or an annuity. HMRC has pursued these arrangements for years, and the liability lands on the individual, often long afterwards and with interest. If the numbers do not add up, that is the finding rather than the puzzle.
Local to you
Chartered accountants, just up the road.
We are based in Finchley and work across North London. Come in, call, or do the whole thing by email — whichever suits you.
Or call 07480 281548