First Year as a Contractor — Tax Checklist (2026/27)

Q: When do I need to start paying tax as a new contractor?

Corporation tax is due 9 months and 1 day after your accounting period ends. Income tax and NI on salary are deducted monthly. Dividend tax is paid via Self Assessment, due 31 January following the tax year.

Q: How much should I set aside for tax in my first year?

Set aside 25–30% of net company income after salary and expenses. Your accountant gives a precise figure at mid-year review. Many contractors use a separate tax savings account.

Q: Can I backdate expenses to before my company started trading?

Yes. Expenses up to seven years before trading are deductible if they would have been allowable. Includes equipment, training, formation fees and interview travel.

Q: Do I need to do a Self Assessment as a company director?

Yes. Register as a director at gov.uk/register-for-self-assessment as soon as you incorporate, declaring salary, dividends and any other income.

Q: What if I only contract for part of the year?

Your first accounting period can be up to 18 months. Corporation tax applies only to the profit earned during that period. Salary and dividend strategy should be adjusted for the shorter period.

What happens in your first year of contracting?

In your first year as a UK contractor operating through a limited company, you will incorporate a company, open a business bank account, register with HMRC for corporation tax and PAYE, run monthly payroll, declare dividends, capture expenses, and at the end of the year file annual accounts, a corporation tax return and a personal Self Assessment tax return. Miss any deadline and HMRC charges automatic penalties starting at £100.

It sounds overwhelming, but with the right accountant it runs on autopilot. This checklist covers every action in the order it happens — from before your first contract through to filing your first annual accounts. Your accountant handles most of these steps; your job is to know what is coming and provide information on time.

If you have not yet decided on your business structure, start with our umbrella vs limited company comparison or our Ltd vs PAYE calculator. If you have decided on a limited company, our step-by-step setup guide covers the incorporation process in detail.

Before your first contract

Week 1–2

Set up your company and get contract-ready

Appoint your accountant — do this first. A specialist contractor accountant handles everything below and ensures your tax structure is optimal from day one
Incorporate at Companies House — £12 online, approved within 24 hours. Choose your company name, SIC code and registered address
Open a business bank account — Starling or Tide (same day, free). This is the critical path — you cannot invoice without it
Get an IR35 review — have your accountant review your first contract before you sign. Know your IR35 status before day one, not after an HMRC enquiry
Set up professional indemnity insurance — most clients and agencies require this. Policies from ~£200/year
Register for PAYE as an employer — your accountant registers with HMRC. Employer reference arrives within 5–10 working days
Register for Self Assessment — register at gov.uk/register-for-self-assessment as a company director. Your personal UTR arrives within 10 working days
Decide on VAT — mandatory above £90,000 turnover, voluntary below. Your accountant advises based on your client base

Not sure what you can claim?

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Month-by-month: your first-year tax calendar

Month 1

First invoice, first salary, start capturing expenses

Send your first invoice — include company name, registration number, registered address, bank details and VAT number (if registered)
Run your first payroll — pay yourself £1,047.50 gross (£12,570 ÷ 12). Your accountant submits the RTI filing to HMRC. See our salary and dividend strategy for why this amount is optimal
Start your mileage log — record every business journey from day one: date, destination, purpose, miles. HMRC rejects retrospective estimates
Set up receipt capture — use Xero’s mobile app or Dext to photograph every receipt the day you get it. Paper fades; digital is permanent
Claim pre-trading expenses — give your accountant receipts for anything you spent before trading: formation fees, equipment, training, certifications. Deductible up to seven years back
Connect Xero — your accountant sets up the bank feed, chart of accounts and invoice template

Month 2–3

Settle into routine, declare your first dividend

Declare your first interim dividend — once you have retained profit in the company (first client payment cleared minus salary and expenses), you can take a dividend. Your accountant prepares the board minute and dividend voucher. Never take more than your accumulated profit — that creates an illegal dividend and a S455 tax charge of 33.75%
Monthly payroll — continues automatically; your accountant submits RTI each month
Employer NI payment — due to HMRC by the 22nd of the following month (or 19th if paying by post)
First VAT return (if registered) — your first VAT quarter ends ~3 months after registration. Return and payment due 1 month and 7 days after the quarter end
Review expenses — are you claiming everything? Home office, mileage, software subscriptions, phone, professional subs? See our contractor expenses guide for the claims most contractors miss

Month 6

Mid-year tax planning check

Half-year review with your accountant — review profit to date, dividend position, and forecast for the rest of the year. Adjust dividend timing if your total income is approaching the £50,270 higher-rate threshold or the £100,000 personal allowance taper
Pension contribution check — if you have not yet set up an employer pension, do it now. Employer pension contributions are the most tax-efficient extraction method for income above the basic-rate band — deductible against corporation tax, exempt from all NI, and not counted as personal income
Contract renewal — if your contract is renewing, get a fresh IR35 review. A change in working practices or a new SDS can affect your status
Check your Companies House filing deadline — your first confirmation statement is due within 14 days of the first anniversary of incorporation

Month 9

Year-end tax planning begins

Corporation tax planning — estimate your full-year profit. If profits will be between £50,000 and £250,000, you enter the marginal relief band (effective rate ~26.5%) — consider whether employer pension contributions or deferred dividends bring you back under £50,000 for the 19% small profits rate
Dividend vs pension split — with three months of data still to come, your accountant models the optimal split between dividends (taken now, taxed at 10.75% basic) and pension contributions (taken as employer contributions, taxed at 0% NI, 0% income tax, 19% CT saving)
Annual event budget — remember the £150 per head tax-free annual event allowance. Use it or lose it by your year end
Trivial benefits — the £300 annual cap on trivial benefits resets at the tax year end (5 April), not your company year end. Have you used your allowance?

Month 12

Year-end: final actions before your accounting period closes

Final dividend declaration — your accountant calculates the maximum tax-efficient dividend to declare before your year end, accounting for all salary, interim dividends and pension contributions already made
Pension top-up — last chance to make employer pension contributions that reduce this year’s corporation tax bill. Annual allowance: £60,000 for 2026/27, plus up to three years of unused allowance carried forward
Capital expenditure — any equipment purchased before year end qualifies for Annual Investment Allowance (100% deduction in year one, up to £1m)
Reconcile everything — ensure every transaction in your bank account is categorised in Xero, all receipts are uploaded, and mileage log is complete. Your accountant cannot prepare accurate accounts from incomplete data
Review your IR35 position for next year — if your contract is continuing, has anything changed? New SDS? Different client? Discuss with your accountant

After your first year end: filing deadlines

Your accounting period has closed, but the filing obligations stretch months into year two. Miss these and the penalties are automatic — no warnings, no grace period.

Deadline	What	Penalty for Late Filing
9 months after year end	Annual accounts filed at Companies House	£150 (1 day late) rising to £1,500 (6+ months)
9 months + 1 day after year end	Corporation tax payment due to HMRC	Interest from day 1 + 5% surcharge at 6 months
12 months after year end	Corporation tax return (CT600) filed with HMRC	£100 (1 day late) + £100 (3 months) + 10% of tax due (6+ months)
14 days after incorporation anniversary	Confirmation statement filed at Companies House	£5,000 fine and potential company strike-off
31 January following the tax year	Personal Self Assessment tax return (for your salary + dividends)	£100 (1 day late) + daily penalties after 3 months

Example timeline: If your company year end is 31 March 2027, your annual accounts are due by 31 December 2027, corporation tax payment by 1 January 2028, and your CT600 by 31 March 2028. Your personal Self Assessment for the 2026/27 tax year is due by 31 January 2028. That is four overlapping deadlines in a three-month window — miss one and the penalties stack up. Your accountant manages all of these dates for you.

The 7 most expensive first-year mistakes

We see these every week from contractors who started without professional guidance. Each one costs real money — and all are avoidable.

Not getting an IR35 review before day one — if your contract is inside IR35 and you have been extracting income via salary and dividends as though outside, HMRC can assess backdated tax, NI, interest and penalties. For a £80,000 contract over 12 months, that can reach £15,000–£20,000
Paying too much salary — every pound above £12,570 costs 43% in combined tax and NI vs 10.75% as dividends. On £30,000 of excess salary, that is roughly £9,600 wasted. See our optimal salary guide
Not claiming expenses from week one — receipts lost in the first few months are gone permanently. At an average of £500/month in claimable expenses, three months of missed claims costs £285 in corporation tax — every year, compounding
Mixing personal and business bank accounts — creates a director’s loan account tangle. Overdrawn balances trigger a 33.75% S455 tax charge payable 9 months after year end. We see this from almost every contractor who started without an accountant
Forgetting to register for Self Assessment — you must register as a company director even if all your income is from the company. Late registration delays your UTR, which delays your tax return, which triggers £100+ in automatic penalties
Ignoring pension contributions — waiting until year two or three to start a pension means missing £3,000–£12,000+ in annual tax savings. The tax benefits are available from month one. Start immediately
Choosing the wrong year end — the default is 12 months from incorporation, but aligning with the tax year (31 March or 5 April) simplifies your Self Assessment and can improve cash-flow timing. Discuss this with your accountant before your first accounts are due — changing it later is possible but adds cost

How AccTek manages your first year

ICAEW-regulated and led by Godwin Pinto ACA, AccTek takes the entire first-year compliance burden off your shoulders. When you come on board, here is what we handle:

Company formation — incorporation, SIC codes, share structure, registered address
All HMRC registrations — corporation tax, PAYE employer, Self Assessment director notification, VAT (if applicable)
Xero setup — bank feed, chart of accounts, invoice templates, payroll, expense categories
IR35 review — contract and working-practice assessment before your first day on site
Monthly payroll — RTI submissions, salary payments, employer NI calculations
Quarterly expense reviews — we check you are claiming everything you are entitled to and prompt for missing receipts
Mid-year and year-end tax planning — dividend timing, pension contributions, higher-rate threshold management
Annual accounts, CT600 and Self Assessment — prepared, reviewed and filed before every deadline
Deadline management — we track every filing date and payment date so you never face an avoidable penalty

All included from £19.99/month. Whether you are an IT contractor, a freelancer, or just exploring your options, we get you started right.

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First year as a contractor — frequently asked questions

When do I need to start paying tax as a new contractor?

Corporation tax on your first year’s profits is due 9 months and 1 day after your accounting period ends. If you incorporate in April 2026 with a March 2027 year end, your first corporation tax payment is due 1 January 2028. Income tax and NI on your salary are deducted monthly through payroll. Dividend tax is paid through your Self Assessment return, due 31 January following the tax year.

How much should I set aside for tax in my first year?

A safe rule of thumb: set aside 25–30% of your net company income (after salary and expenses) for corporation tax plus personal dividend tax. Your accountant gives you a precise figure at your mid-year review. Many contractors open a separate “tax pot” savings account and transfer the estimated tax portion each month so the bill is fully funded when it arrives.

Can I backdate expenses to before my company started trading?

Yes. Expenses incurred up to seven years before your company started trading are deductible if they would have been allowable had the company been trading. This includes equipment, training, formation fees and travel to interviews. See our contractor expenses guide.

Do I need to do a Self Assessment as a company director?

Yes. Even though your company pays corporation tax, you personally must file a Self Assessment return declaring your salary, dividends and any other income. Register as a director at gov.uk/register-for-self-assessment as soon as you incorporate.

What if I only contract for part of the year?

Your company’s first accounting period runs from incorporation to your chosen year end (up to 18 months for the first period). If you only trade for six months, you only pay corporation tax on six months of profit. Your salary and dividend strategy should be adjusted for the shorter period — your accountant models this at onboarding. The personal tax year (6 April to 5 April) is separate from your company year end.

Should I set up a pension in my first year?

Yes. Employer pension contributions are the most tax-efficient way to extract profits above the basic-rate band: deductible against corporation tax, exempt from all NI, and not counted as personal income. There is no minimum period of trading before you can contribute. Start in month one to maximise the benefit from year one. See our salary and dividend guide for the full pension strategy.

First Year as a Contractor — Your Complete Tax Checklist