Corporation Tax For UK Contractors

Running through a limited company is still the most tax-efficient way to contract in the UK — but only if the company is run properly. Next Tax Source prepares your CT600 corporation tax return and Companies House accounts, models the optimal salary-and-dividend mix for the 2026/27 rates, and keeps your IR35 status defensible. Every return is reviewed and signed by a chartered accountant.

Who This Is For

Contracting through a limited company can still be the most tax-efficient way to work for yourself in the UK — but only when the company is run correctly and your IR35 position is sound. This page is for personal-service-company contractors who want their compliance handled properly and their take-home optimised within the rules. We act for:

• IT, engineering and management consultants working through a single-director limited company
• Contractors moving from a sole trade or umbrella into their own limited company for the first time
• Directors who want their salary-and-dividend mix modelled properly each year rather than guessed
• Contractors uncertain whether a specific engagement falls inside or outside IR35
• Anyone who wants a single fee covering accounts, corporation tax, payroll and their own Self Assessment

If you would rather build than chase HMRC deadlines, book a private consultation and we will take the compliance off your desk.

What's Involved In Running A Contractor Company

A limited-company contractor has more moving parts than a sole trader, and each carries its own deadline. A complete engagement covers the full compliance set so nothing is missed:

• The CT600 corporation tax return and the supporting computation, filed with HMRC.
• Statutory accounts prepared to the relevant standard and filed at Companies House.
• A confirmation statement keeping your company register up to date.
• Payroll (PAYE) and dividend administration, including dividend vouchers and board minutes that evidence each distribution.
• Your director's Self Assessment, bringing salary, dividends and any other income together.
• VAT, if you are registered, filed under Making Tax Digital.

Corporation tax itself is charged on company profits, with the rate depending on the level of profit and the marginal-relief rules in between the lower and upper limits. HMRC sets out the current rates and limits in its corporation tax rates guidance; because these change at fiscal events, we apply the figures in force for your accounting period rather than assume last year's still hold.

Salary Versus Dividends

For most contractors, the efficient structure has historically been a modest salary — typically set around the National Insurance thresholds to preserve state-pension entitlement without triggering large NI — topped up with dividends from post-tax profit. That logic still holds, but the gap has narrowed: dividend tax rates have been rising, and the dividend allowance has shrunk, so the precise optimum now depends closely on your profit level and personal circumstances. We model your exact numbers rather than apply a rule of thumb, and we keep the calculation current as rates change. You can run an indicative split yourself with our salary-versus-dividend optimiser, then we make it real and document each dividend correctly.

IR35 — Getting Your Status Right

IR35, the off-payroll working rules, is the single biggest risk to the limited-company contractor model. If an engagement is judged to be inside IR35, the income is taxed broadly like employment and most of the limited-company advantage disappears. For work in the private sector, the responsibility for the status determination usually sits with the end client where they are a medium or large business; smaller clients and certain arrangements can leave the decision — and the risk — with you. HMRC's position and tools are set out in its off-payroll working (IR35) guidance.

We review your contracts and, just as importantly, your actual working practices — control, substitution, mutuality of obligation — so your status is defensible if challenged. When an engagement genuinely looks inside IR35, we tell you honestly rather than paper over it, and we structure your affairs accordingly.

Common Mistakes Contractors Make

• Taking dividends the company can't support. Dividends can only be paid from distributable profit; an unlawful dividend can be reclassified, sometimes as a director's loan with its own tax charge.
• Ignoring the director's loan account. Drawing more than salary and lawful dividends creates an overdrawn loan that can trigger a temporary corporation-tax charge until repaid.
• Treating IR35 as a one-off. Status is assessed engagement by engagement; a clean past contract does not protect a different future one.
• Missing a filing deadline. Corporation tax, the CT600, accounts, the confirmation statement and Self Assessment all run on different clocks, and each carries its own penalty.
• Mixing personal and company money. Blurred boundaries create messy records and avoidable tax exposure; a clean separation is the foundation of an efficient company.

How Next Tax Source Handles It

We run the full compliance set on one fee, model your salary-and-dividend mix for the current year, review your IR35 status, and keep every deadline calendared and filed ahead of time. Every return and set of accounts is reviewed and signed by a chartered accountant before it goes to HMRC or Companies House, and once signed we can act as your agent for HMRC correspondence. No figure goes on a return that we cannot support from your records or current HMRC guidance. See how engagements are scoped on our pricing page, or read further contractor guidance in the Next Tax Source Journal.

Questions People Ask