If you operate through a limited company as a contractor, your Corporation Tax obligations depend heavily on whether your contracts fall inside or outside IR35. This guide explains how IR35 affects your CT600 return and what you need to know about filing.

What Is IR35?

IR35 is tax legislation designed to identify contractors who would be employees if they weren't working through an intermediary (usually their own limited company). The rules determine whether your income should be taxed as employment income or as company profits.

Since April 2021, the responsibility for determining IR35 status shifted to the end client (for medium and large businesses) under the off-payroll working rules. Small company clients still leave the determination to the contractor.

Inside IR35

If a contract is inside IR35, the fee-payer (usually an agency or client) deducts Income Tax and National Insurance before paying your limited company. Your company receives a net payment that has already been taxed as if you were an employee.

On your CT600, this income still appears as company revenue, but you'll have a corresponding deemed employment payment that offsets most of the profit. The key CT600 implications:

Box 145 (Turnover): Include the gross contract value
Box 185 (Total income): The net amount after deemed employment deductions
Box 235 (Trading profits): Usually minimal for inside IR35 contracts

Outside IR35

If a contract is outside IR35, your company receives the full gross payment. You have more flexibility in how you extract profits — through salary, dividends, or pension contributions.

Your CT600 will show:

Box 145: Full contract income
Box 185: Income minus allowable expenses
Box 235: Trading profit after all deductions

How IR35 Status Affects Your Tax Position

Inside IR35: The Deemed Payment Calculation

When a contract is inside IR35, a deemed employment payment must be calculated at the end of each tax year. This calculation determines how much of your company's income should be treated as employment income.

The deemed payment calculation:

Start with the contract income received
Deduct a 5% allowance for running costs (the "5% admin allowance")
Deduct actual expenses (travel, equipment, professional subscriptions)
Deduct employer's NI contributions already paid
The remainder is the deemed employment payment

You must operate PAYE on this deemed payment, paying both employee and employer National Insurance. This significantly reduces the company's Corporation Tax liability because the deemed payment is a deductible expense.

Outside IR35: Standard Corporation Tax Planning

With outside IR35 contracts, you have the traditional contractor tax planning options:

Salary: Pay yourself a tax-efficient salary (usually at the NI Primary Threshold — £12,570 for 2025/26)
Dividends: Extract remaining profits as dividends (taxed at 8.75%, 33.75%, or 39.35% depending on your bracket)
Pension contributions: Company pension contributions are a deductible expense on your CT600
Expenses: Claim all legitimate business expenses

Common CT600 Entries for Contractors

Typical Expenses to Claim (Box 190 onwards)

Whether inside or outside IR35, your limited company can claim:

Professional indemnity insurance: Essential for most contractors
Accountancy fees: If you use an accountant or filing software
Software and subscriptions: Tools needed for your work
Home office costs: A proportion of household costs if you work from home
Training: Courses directly related to your current trade
Travel: To temporary workplaces (not to a single client site for 24+ months)
Equipment: Laptops, monitors, phones — claimed via Annual Investment Allowance

The 24-Month Rule for Travel

Contractors often fall foul of the 24-month travel rule. You can claim travel expenses to a temporary workplace, but if you work at the same location (or expect to) for more than 24 continuous months, it becomes a permanent workplace and travel is no longer deductible.

This applies regardless of IR35 status and can significantly affect your CT600 if you've been claiming travel expenses incorrectly.

Mixed IR35 Status Contracts

Many contractors have a mix of inside and outside IR35 contracts within the same accounting period. Your CT600 must account for all of them:

Separate your income streams: Track inside and outside IR35 income separately in your accounting records
Calculate deemed payments: Only for inside IR35 contracts
Allocate expenses correctly: Some expenses may only be deductible against specific contracts
Report total trading profit: Box 235 shows the combined position

Filing Your CT600 as a Contractor

Step 1: Gather Your Records

Before filing, you need:

Bank statements for the accounting period
Invoices for all contracts
IR35 status determinations from clients (Status Determination Statements)
Expense receipts
Payroll records (salary, PAYE, NI)
Dividend vouchers

Step 2: Calculate Your Profit

Add up all income, deduct all allowable expenses, deduct the deemed employment payment for inside IR35 contracts, and deduct your salary costs. The result is your taxable trading profit.

Step 3: Apply Corporation Tax Rates

For the 2025/26 financial year:

Small profits rate (19%): Taxable profits up to £50,000
Main rate (25%): Taxable profits over £250,000
Marginal rate: Profits between £50,000 and £250,000 (effective rate 26.5% on profits in this band)

Most contractor companies fall well within the small profits rate.

Step 4: File and Pay

Your CT600 must be filed within 12 months of your accounting period end. Corporation Tax is due 9 months and 1 day after your accounting period ends — don't confuse the filing deadline with the payment deadline.

Common Mistakes Contractors Make

1. Ignoring the 5% Allowance

Inside IR35 contractors are entitled to a 5% allowance for running the intermediary. This is free money — don't forget to apply it in your deemed payment calculation.

2. Claiming Expenses After 24 Months

If you've been at the same client site for over 24 months, stop claiming travel. HMRC actively targets this in contractor investigations.

3. Not Operating PAYE on Deemed Payments

If you have inside IR35 income and don't operate PAYE correctly, HMRC can charge penalties plus interest on the unpaid tax and NI.

4. Mixing Personal and Business Expenses

Keep a clear separation. Directors' loan account problems are one of the most common issues HMRC finds in contractor company investigations.

5. Filing Late

The penalty for late CT600 filing starts at £100 and increases to £200 after 3 months. After 6 months, HMRC estimates your tax bill (usually generously in their favour) and charges 10% of the unpaid tax.

Do You Need an Accountant?

Many contractors use accountants, but with the right software, straightforward contractor companies can self-file. You should consider self-filing if:

Your contracts are clearly outside IR35
You have simple expenses
You pay yourself a salary and dividends
You don't have complex tax planning arrangements

If you have multiple inside IR35 contracts, a mix of employment and self-employment income, or complex share structures, an accountant is worth the investment.

File Your CT600 with Taxpipe

Taxpipe makes it straightforward for contractors to file their own CT600. Our guided wizard walks you through every box, auto-computes your Corporation Tax (including marginal relief), and submits directly to HMRC — all for just £59 per return.

Not sure how much tax you'll owe? Try our free Corporation Tax Calculator to estimate your liability before you start.

More freelancer tips: Corporation Tax for Freelancers →

This article is for general information only and does not constitute tax advice. If you're unsure about your IR35 status or have complex tax arrangements, consult a qualified accountant.

Corporation Tax for Contractors: IR35 and Your CT600