Contractor accounting
You have a signed contract, a start date and a determination that says outside IR35. What you do not yet have is a company, a business bank account, a payroll scheme, or a clear idea of when the first invoice goes out. That is the situation this page is written for: a professional going limited for the first time because a genuine outside IR35 engagement is about to begin. Sequence matters more than most people expect. Incorporation, the bank account, VAT registration, a PAYE scheme and the first dividend each carry their own timing, and taking them out of order costs you either tax or a fortnight of waiting while the agency holds your invoice. This page sets out the order that works, and what has to happen in the week the first invoice falls due.
The specific challenges
Incorporation is the quick part. What follows is slower: a business bank account that needs identity checks, a PAYE scheme that takes time to issue references, a VAT number that arrives weeks after you apply, and an agency onboarding pack that will not clear until the company details match. Start the slow items first and the first invoice goes out on time. The running order is set out in our first outside IR35 contract setup checklist.
Registration is compulsory once VAT taxable turnover passes £90,000 in any rolling 12 months, or is expected to in the next 30 days, and a full time day rate reaches that quickly. Many first time contractors register voluntarily before then, because a VAT registered end client recovers the VAT charged and your invoice costs them no more. The Flat Rate Scheme looks attractive until the limited cost trader test applies: spend less than 2% of turnover on goods and the rate is 16.5%, which wipes out most of the benefit for a labour only contractor.
The bank balance is not yours. Corporation tax runs at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between giving an effective rate of about 26.5%, and VAT collected belongs to HMRC. Dividends can only come from profit after corporation tax. First year contractors routinely draw the full balance, then meet a bill nine months later with nothing left to pay it.
A determination from the client, or a CEST result, is a useful first screen and worth keeping on file. Neither binds a tribunal, and neither survives working practices that contradict them. If the client sets your hours, directs how the work is done and would never accept a substitute, the wording will not hold the position. Both need checking, at the start and on every renewal.
How we help
Formation at Companies House, share structure, registered office, the corporation tax registration, a PAYE scheme where you will run payroll, and a VAT application if you are registering. Each registration is tracked until its reference lands, so you know exactly which step is holding up the agency pack. Background on structure is set out in how to set up a limited company for contracting.
The signed contract is read against how the job will really be run: control over hours and method, the substitution right and whether the client would honour it, and whether the role fills what would otherwise be a permanent seat. Where paperwork and practice diverge, you get a plain list of what would need to change.
Salary set at a level chosen for your circumstances rather than a default, real time information submissions from the first pay run, and the VAT decision modelled both ways before you commit. Sanity check the numbers yourself with the outside IR35 take home calculator before the first invoice goes out.
Before money moves, the company needs management figures showing distributable profit, a board minute and a dividend voucher. Timing across the 6 April line matters too, because dividend rates for 2026/27 are 10.75% and 35.75% after the £500 allowance. The split between salary and dividend is modelled for the year rather than guessed monthly, and the salary and dividend calculator shows the shape of it.
Free call
Book a free call. We will talk through your IR35 position, your structure and whether there is anything worth changing. No hard sell, no obligation.
Contractor work only, not a general practice sideline, so a contractor specialist reviews your enquiry. If you would rather write to us first, use the contact form.