Contractor Accountants

Accounting for Contractors & Freelancers

Contractors and freelancers face a different set of financial and tax challenges from permanent employees. Choosing the right trading structure, understanding IR35, extracting income tax-efficiently and staying compliant with HMRC all require specialist support.

At CFA Accountants, we support contractors and freelancers across all sectors — from IT and finance to construction and creative industries — helping them structure their affairs correctly and keep more of what they earn.

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We Work With

IT contractors and developers

Finance and management consultants

Construction and trades (CIS)

Marketing and creative freelancers

Engineering and technical contractors

Locum and interim professionals

Agency and umbrella company workers reviewing options

Core Services

What We Provide for Contractors

Limited Company Accounts

Annual accounts, corporation tax returns and Companies House filings for contractor limited companies.

IR35 Advice

Status assessments, contract reviews and advice on working practices to support an outside-IR35 determination.

Self Assessment Tax Returns

Personal tax returns covering dividend income, employment income, rental income and other sources.

Dividend & Salary Planning

Tax-efficient remuneration planning — optimising the split between salary and dividends for your circumstances.

VAT Returns

VAT registration, return preparation, MTD-compliant submissions and Flat Rate Scheme advice.

CIS Returns

CIS deduction verification, monthly CIS returns and CIS refund claims for construction contractors and subcontractors.

Company Formation

Limited company formation, registered office, director setup and initial accounting software configuration.

Bookkeeping

Monthly bookkeeping, bank reconciliations and cloud accounting software support.

IR35 — Off-Payroll Working Rules

IR35 (the off-payroll working rules) determines whether a contractor working through a limited company or other intermediary should be taxed as an employee for a particular engagement. HMRC's IR35 guidance explains the rules in detail.

Since April 2021, medium and large private sector clients are responsible for determining IR35 status. For engagements with small clients, the contractor's own company remains responsible for the determination. Key factors HMRC considers include:

Substitution — can you send someone else to do the work

Control — does the client control how, when and where you work

Mutuality of obligation — is there an obligation to offer and accept work

Financial risk — do you bear financial risk for the engagement

Equipment — do you provide your own equipment

Part and parcel — are you integrated into the client's organisation

An outside-IR35 determination does not just depend on the contract wording — HMRC looks at the actual working practices. We can review both your contract and your working arrangements and advise on the overall picture. HMRC's CEST tool can also be used to check employment status for tax purposes.

Limited Company vs Sole Trader

Most contractors operate either as a sole trader or through a limited company. The right choice depends on your income level, IR35 position, liability requirements and future plans.

Limited Company

Potentially more tax-efficient at higher income

Separate legal entity — limited liability

Ability to retain profits in company

More administration and compliance costs

Better perception with some clients

Sole Trader

Simpler to set up and run

Lower compliance costs

All profits taxed as personal income

No limited liability protection

Less tax efficiency at higher profit levels

We model both options against your specific income level and circumstances before making any recommendation.

Dividend Planning & Tax-Efficient Extraction

For contractors operating outside IR35 through a limited company, taking income as a combination of salary and dividends is generally more tax-efficient than taking a full salary. For 2026/27, HMRC's dividend tax rates are 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate). The dividend allowance for 2026/27 is £500.

Optimal salary level to maximise NI efficiency

Dividend extraction timing and planning

Director loan account management

Corporation tax planning and reserves

Pension contributions from the company (highly tax-efficient)

Spouse or partner dividend planning where appropriate

Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) requires contractors in the construction sector to deduct money from subcontractor payments and pass it to HMRC. Subcontractors can reclaim overpaid CIS deductions through Self Assessment or their company's corporation tax return.

CIS registration for contractors and subcontractors

Monthly CIS return filing

Verification of subcontractors with HMRC

Gross payment status applications

CIS deduction reclaim through Self Assessment

CIS compliance for limited company subcontractors

Allowable Expenses for Contractors

Contractors can claim a range of business expenses against their income, reducing their tax liability. HMRC's guidance on allowable expenses sets out the general principles. For limited company contractors, expenses must be wholly and exclusively for business purposes.

Professional subscriptions and memberships

Accountancy and professional fees

Business travel and mileage (HMRC approved rates)

Home office costs (where applicable)

IT equipment, software and subscriptions

Training and CPD courses directly related to current work

Business insurance (PI, PL, income protection)

Marketing and website costs

Common Questions

Contractor Accountancy — Frequently Asked Questions

IR35 is HMRC's off-payroll working legislation. It applies where a contractor works through an intermediary (such as a limited company) but the working relationship with the end client resembles employment. If caught by IR35, the contractor's income from that engagement is taxed as employment income. Whether it applies depends on the specifics of each engagement — the contract, the actual working practices and several key factors HMRC considers.

This depends on your income level, IR35 position and circumstances. A limited company generally offers more tax efficiency at higher income levels through dividend extraction and retained profits. A sole trader is simpler and cheaper to run but all profits are taxed as personal income immediately. We model both scenarios for your specific situation before making a recommendation.

Most contractor accountants recommend a salary at or around the National Insurance Secondary threshold (£9,100 for 2026/27) or the Primary threshold (£12,570). This keeps the salary within the personal allowance, minimises NI contributions, and allows the rest of your income to be taken as dividends. The right level depends on your individual circumstances including any other employment income.

You can take dividends up to the available retained profits in your company. The dividend allowance for 2026/27 is £500 — dividends within this allowance are tax-free. Above the allowance, dividend tax rates are 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate). The most tax-efficient level depends on your total income for the year.

The VAT Flat Rate Scheme (FRS) allows eligible businesses to pay a fixed percentage of their VAT-inclusive turnover to HMRC rather than calculating VAT on every transaction. The rate depends on your business sector. It can simplify VAT accounting but is not always more beneficial than standard VAT — it depends on your level of VAT-bearing expenses.

The Construction Industry Scheme (CIS) requires contractors to deduct 20% (or 30% for unregistered subcontractors) from payments to subcontractors and pass these to HMRC. As a subcontractor, these deductions are a payment on account of your tax and NI liability and can be reclaimed through Self Assessment or your company's corporation tax return.

Yes, if you work from home regularly. For limited companies, HMRC allows a flat rate of £6 per week without requiring evidence, or you can claim a proportion of actual home costs (heating, lighting, broadband) based on the number of rooms used for business and time spent. HMRC's guidance covers the options for self-employed individuals and company directors.

If HMRC opens a compliance check relating to IR35, they will typically request contracts and ask questions about your working practices. Having contemporaneous evidence of your working arrangements (substitution, control, MOO) is important. We can assist with HMRC correspondence and help you prepare the documentation needed to support your position.

Transparent Pricing

Fixed-fee accountancy for contractors and freelancers

All fees agreed upfront following a free consultation. No hourly billing, no surprises.

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IR35 advice, limited company accounts, dividend planning and self-assessment for contractors and freelancers across Manchester and Greater Manchester.