Contracting in the UK has never been more complex — or more rewarding. The right accountant and the right financial structure can mean a significant difference to your take-home pay and your financial security. Here's what contractors need to know in 2026.
Limited company vs umbrella company — which is right for you?
This is the first decision most new contractors face, and it's an important one. Operating through your own limited company generally allows greater tax efficiency — you can draw a combination of salary and dividends, claim business expenses, and benefit from the lower rates of corporation tax compared to income tax. However, it comes with administrative responsibilities and costs.
An umbrella company is simpler — you're essentially an employee of the umbrella, which handles all the admin. But you pay employer's National Insurance, which significantly reduces your take-home. For contractors with relatively simple setups and short-term contracts, it can make sense; for most established contractors, a limited company is more efficient.
Understanding IR35
IR35 is the legislation designed to prevent "disguised employment" — where a contractor does essentially the same work as an employee but benefits from the tax advantages of self-employment. If a contract is deemed "inside IR35", you pay tax as if you were an employee, which is significantly less tax-efficient.
Since 2021, large and medium-sized private sector companies have been responsible for determining IR35 status (previously it was the contractor's responsibility). This has made it more important than ever to have a specialist accountant reviewing your contracts and advising on your status.
Optimising your salary and dividends
One of the key benefits of trading through a limited company is the ability to draw income as a combination of salary and dividends. Dividends are taxed at lower rates than salary and are not subject to National Insurance contributions. A good contractor accountant will help you establish the most tax-efficient combination for your circumstances — typically a salary at or around the National Insurance threshold, with the rest drawn as dividends.
The optimal structure depends on your annual income, whether you have a spouse or partner, your personal allowance, and other income sources. It's not a one-size-fits-all calculation.
What expenses can contractors claim?
As a limited company contractor, you can claim a range of legitimate business expenses through your company, reducing your corporation tax liability. Common claimable expenses include:
- Accountancy fees
- Professional subscriptions and training
- Business travel (but not ordinary commuting)
- Equipment, hardware and software
- Home office costs (a proportion of relevant bills)
- Business insurance, including professional indemnity
Why specialist contractor accounting matters
General accountants often don't understand the nuances of contractor finances — IR35, optimal dividend strategy, allowable expenses for contractors, and the complexities of multiple revenue streams. A specialist contractor accountant pays for themselves many times over in tax saved and headaches avoided.
At NumberCrunch, we work with contractors across the UK and understand the landscape intimately. Book a free consultation and let's talk about your specific situation.