Three decisions shape every IT contractor’s tax position: whether to trade through a limited company or as a sole trader, whether your work falls inside or outside IR35, and which expenses you can legitimately
claim through your company. Get all three right and your structure works hard for you. Overlook any one and the advantages of contracting can disappear quickly. This guide covers how IT contractor accounting works in practice for 2026–27.
This page covers the mechanics. For who we are and what we offer, see our IT contractor accountancy service.
An IT contractor accountant manages your limited company’s compliance and tax — including year-end accounts, your CT600 corporation tax return, VAT, payroll, and IR35 support — for a fixed monthly fee.
That covers considerably more ground than standard personal tax work. Most IT contractors trade through a personal service company (PSC), which means you are simultaneously a company director, an employee, and usually a shareholder. Each role carries its own obligations:
IR35 determination support is the piece most often missing from a basic package. A thorough contractor accountant will review your contracts and working practices, flag risk areas, and help you build the evidence file you need — substitution clauses, control arrangements, mutuality of obligation. That is not a paid add-on. It should be built into a standard fixed fee from the outset.
IR35 is the off-payroll working legislation designed to ensure contractors who work in a way that resembles employment pay broadly the same tax as employees. Whether you are inside or outside IR35 determines how you are taxed — and therefore what your accountant needs to do.
Outside IR35: Your client pays your PSC. The company receives the income, pays corporation tax on its profits, and you draw a salary and dividends. This is the structure most IT contractor accounting is built around, and the one that makes the limited company structure genuinely efficient.
Inside IR35: Your fee income is treated as deemed employment income. Income tax and National Insurance contributions are deducted from that income before any money reaches the company — as
though you were employed directly. There is significantly less scope for tax efficiency, and the accounting requirements change accordingly.
Since the off-payroll working reforms of April 2017 (public sector) and April 2021 (medium and large private sector clients), the client engager is responsible for issuing a Status Determination Statement (SDS) — not the contractor. Small clients (those below the Companies Act size thresholds) remain outside the rules; in those cases the contractor retains responsibility for their own status.
The evidence file that supports an outside-IR35 determination typically includes:
GOV.UK provides the Check Employment Status for Tax (CEST) tool as a starting point. It is not a definitive verdict, and HMRC’s own guidance notes its limitations.
Speak to an accountant for advice specific to your contract and circumstances.
All figures below are taken from GOV.UK for the 2026–27 tax year. Verify current figures before filing.
| Profit level | Rate |
|---|---|
| Up to £50,000 (small profits rate) | 19% |
| £50,001–£250,000 (marginal relief applies) | 19%–25% |
| Over £250,000 (main rate) | 25% |
Source: GOV.UK — Corporation Tax rates
Most single-director PSCs with one or two contracts will sit in the small profits band. Marginal relief is calculated automatically but must be applied correctly — it is not a simple flat rate.
The optimal director salary is typically benchmarked against National Insurance thresholds. For 2026–27, the employer secondary threshold is £5,000 per year (source: GOV.UK — National Insurance rates); setting salary here avoids employer NICs for companies that cannot claim the Employment Allowance. Where the Employment Allowance is available, setting salary at the primary threshold of £12,570 can be more efficient — your accountant should model both.
Above your salary, remaining profits are typically extracted as dividends. Key thresholds for 2026–27:
The timing of dividend declarations matters. Dividends must only be drawn from retained profits and must be minuted correctly. Undocumented dividend drawings are treated by HMRC as directors’ loans, with their own tax consequences.
HMRC’s Business Income Manual (BIM37000 series) sets out the wholly and exclusively test for business expenses. Common allowable expenses for IT contractors include:
The VAT registration threshold for 2026–27 is £90,000 of taxable turnover in any rolling 12-month
period (source: GOV.UK — VAT registration thresholds). Most day-rate IT contractors exceed this
quickly. The Flat Rate Scheme can simplify accounting if annual turnover is below £150,000 — whether it is financially beneficial depends on your expenditure profile and the flat rate percentage for your trade sector.
Fixed-fee accountancy is the norm for contractors, and for good reason: your accounting workload is predictable and your monthly costs should be too. A fixed monthly fee of £80–£150+VAT per month covers most single-director PSCs with a straightforward structure. Hourly billing introduces variability and, in practice, can make contractors reluctant to ask questions — the opposite of what a good accountant relationship looks like.
When comparing quotes, check what is actually included. Common exclusions in cheaper packages: IR35 review, P11D preparation, R&D tax credit work, and the Companies House confirmation statement. The headline fee is rarely the complete picture.
If IR35 review is listed as a paid extra, treat it as a signal — the wrong kind. The off-payroll working rules have been settled law since 2017 and 2021 respectively. Any accountant positioning themselves for
the IT contractor market should consider IR35 assessment as core to the service, not an optional upgrade. Competence here is not a premium feature.
Ask directly: does the fee include a review of my contracts and working practices before each new engagement? If the answer is unclear, that is your answer.
At AccTek, IT contractor accounting is a fixed monthly fee with no lock-in, IR35 contract and working-practices support included as standard, a dedicated accountant, and all the compliance above managed
end to end. Our IT contractor accountancy service sets out the full scope.
If you are still deciding whether a limited company is right for your situation, our sole trader vs limited company comparison sets out the trade-offs at each income level. Once the company is set up, bookkeeping for your contractor company explains how to keep your records in order between accountant touchpoints.
Do I need an accountant as an IT contractor? You are not legally required to use one, but the combination of a limited company, IR35 obligations, director payroll, corporation tax, and VAT makes it worth the cost for most contractors. Errors in DIY filings — particularly around IR35 and dividend documentation — typically cost more to correct than the annual accountancy fee.
What is IR35 and how does it affect my accounting?
IR35 is off-payroll working legislation. If your contract is assessed as inside IR35, your fee income is taxed as deemed employment income before it reaches your company — eliminating most of the tax efficiency of trading through a PSC. Outside IR35, you draw a salary and dividends from company profits in the standard way. Status is assessed by the client for medium and large engagers.
What expenses can IT contractors claim through their limited company?
Equipment, professional subscriptions, training relevant to your current trade, home office costs, travel to temporary workplaces, and business insurance are the main categories. Each must satisfy HMRC’s wholly and exclusively test. See GOV.UK’s Business Income Manual for the detail behind each category.
How much does IT contractor accounting cost?
Expect £80–£150+VAT per month for a fixed-fee package covering a single-director PSC. Confirm that IR35 support, annual accounts, CT600, VAT returns, RTI payroll, and Self Assessment are all included before comparing prices. A lower headline fee that excludes IR35 work is rarely cheaper in practice.
Can I switch contractor accountant mid-year?
Yes — there is no legal restriction on switching at any point in the year. Your new accountant will request professional clearance from your previous accountant and collect your records. Switching before your company year-end is tidier, but not essential. The process is straightforward if your records are in order.
Fixed-fee IT contractor accounting. IR35 reviews included as standard. No lock-in.
→ Our IT contractor accountancy service — or contact AccTek for a quote.
This guide provides general information only and does not constitute tax or financial advice. Rates and thresholds are correct as
of September 2026 — always verify current figures on GOV.UK. AccTek Ltd is a qualified
chartered accountancy practice · ICPA member · AML-supervised by
HMRC.
Godwin Pinto ACA (ICAI) is the founder of AccTek and a member of ICPA, with 20+ years of experience in accounting and tax for contractors, startups and SMEs. Previously at PwC.
AccTek is a member firm of the Institute of Certified Practising Accountants (ICPA). Our accountants have a wide range of qualifications and accreditations from trusted professional bodies such as the AAT, ICPA, and ACCA.
