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, there are two separate IR35 regimes that work differently:

Off-payroll working rules (Chapter 10, ITEPA 2003): Applies where your end client is a medium or large private-sector business, or any public-sector body. The client determines your IR35 status and issues a Status Determination Statement. If inside IR35, the fee-payer (usually the agency that pays your limited company) deducts Income Tax and National Insurance at source before paying your company.
Intermediaries legislation (Chapter 8, ITEPA 2003): Applies where your client is a small private-sector company (or wholly outside the UK). Your own limited company determines IR35 status and, if inside IR35, is responsible for calculating the deemed employment payment and operating PAYE.

Which regime governs each of your contracts affects both your responsibilities and what ends up on your CT600.

Inside IR35 — Chapter 10 (Medium or Large Client)

If a medium or large client determines your contract is inside IR35, the fee-payer deducts Income Tax and National Insurance before paying your limited company. Your company receives a net payment — there is no deemed employment calculation to perform and the 5% allowance is not available to your company.

On your CT600, the key entries are:

Box 145 (Turnover): Include the gross contract value
Box 155 (Trading profits): The residual taxable profit — typically small, as the net payment received after the fee-payer's PAYE deductions leaves little margin beyond remaining business expenses
Box 235 (Profits before other deductions and reliefs): The combined income position across all of the company's income sources

Inside IR35 — Chapter 8 (Small Client)

If your client is a small private-sector business and your own company determines the contract is inside IR35, your limited company must calculate a deemed employment payment at the end of each tax year and operate PAYE on it.

The deemed payment calculation:

Start with the gross contract income
Deduct a 5% allowance for running the intermediary
Deduct actual expenses the company paid (travel, equipment, professional subscriptions)
Deduct employer's NI contributions already paid
The remainder is the deemed employment payment — your company operates PAYE on this amount, paying both employee and employer National Insurance

This significantly reduces the company's Corporation Tax liability because the salary, employer NICs, and deemed employment payment are all deductible expenses.

On your CT600:

Box 145 (Turnover): Include the gross contract value
Box 155 (Trading profits): Usually minimal — the deemed employment payment and related payroll costs absorb most of the income
Box 235 (Profits before other deductions and reliefs): Your combined income position across all sources

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 (Turnover): Full contract income
Box 155 (Trading profits): Your income minus all allowable business expenses, adjusted for Corporation Tax purposes
Box 235 (Profits before other deductions and reliefs): The combined position combining trading profits with any other income your company earned (interest, property income, capital gains)

How IR35 Status Affects Your Tax Position

Inside IR35: The Deemed Payment Calculation (Chapter 8 Only)

The deemed employment payment calculation applies only to Chapter 8 engagements — where your own company determines IR35 status because the client is a small private-sector business.

For Chapter 10 engagements (medium or large clients), the fee-payer handles PAYE at source. Your company receives the net payment and has no deemed payment calculation to perform.

For Chapter 8 inside-IR35 contracts, the deemed payment calculation determines how much of your company's income is treated as employment income:

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

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

These expenses all flow through your tax computation and feed into box 155 (Trading profits) on the CT600. There are no individual boxes on the CT600 for each expense type — the detailed breakdown goes in the tax computation attached to your return.

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 where applicable: Only for inside IR35 contracts where your own company determines status (Chapter 8 — small clients)
Allocate expenses correctly: Some expenses may only be deductible against specific contracts
Report total trading profit in box 155: Box 235 then shows the combined position across all income types (trading profit, interest, property income, gains)

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 your salary costs. For Chapter 8 inside-IR35 contracts, also deduct the deemed employment payment and employer NICs. 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. Confusing the Two IR35 Regimes

The most common mistake today is treating all inside-IR35 income identically. If a medium or large client has determined your contract is inside IR35 (Chapter 10), the fee-payer deducts Income Tax and NICs at source — your company performs no deemed payment calculation, and the 5% allowance is not available. The deemed payment calculation and the 5% allowance exist only for Chapter 8 engagements (small or wholly-overseas clients, where your own company determines IR35 status). Check which regime applies to each of your contracts before doing any IR35-related calculations.

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 Chapter 8 inside IR35 income and don't operate PAYE correctly on the deemed employment payment, 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

Late filing penalties depend on when your return is due. For accounting periods with filing deadlines before 1 April 2026, the initial penalty is £100, rising by a further £100 at 3 months late. For filing deadlines on or after 1 April 2026 (the doubled regime), the initial penalty is £200, rising by a further £200 at 3 months late. 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