Tax Guide for UK Contractors and Freelancers
A practical guide to contractor tax, IR35, limited companies, expenses, VAT, salary, dividends, and record keeping.
Last reviewed: 2 June 2026
Choose a working structure
Contractors commonly work as sole traders, through limited companies, through agencies, or through umbrella companies. The best structure depends on risk, client requirements, contract length, expected income, and admin tolerance.
Understand IR35 early
IR35 looks at whether the working arrangement is closer to employment or genuine business-to-business contracting. Status is judged contract by contract, so a contractor can have one engagement outside IR35 and another inside.
Plan salary and dividends carefully
Limited company contractors often combine salary and dividends, but the best split depends on profit, other income, pension contributions, Employment Allowance eligibility, and personal circumstances. Revisit the plan each tax year.
Keep expenses defensible
Common contractor expenses include software, equipment, professional fees, insurance, training, accountancy, and some travel. The key question is whether the cost is genuinely for the business and properly evidenced.