CT600 for Contractors: Filing When You're Inside or Outside IR35

CT600 for Contractors: Filing When You're Inside or Outside IR35

As a contractor operating through a Personal Service Company (PSC), your IR35 status fundamentally changes how money flows through your company — and therefore what your CT600 looks like.

Whether you're inside IR35, outside IR35, or dealing with mixed assignments, this guide explains exactly how to file your CT600.

Quick Summary: How IR35 Changes Your CT600

Outside IR35: The Standard Contractor CT600

If your contracts are outside IR35, your PSC operates like any other trading company:

How the money flows

1. Client pays your PSC the gross contract fee
2. Your PSC deducts business expenses
3. You take a small salary (usually £12,570 — the personal allowance)
4. Company pays corporation tax on profits
5. You take remaining profits as dividends

Your CT600 includes

• Box 155 (Trading profits): Your tax-adjusted profit — gross fees minus allowable expenses minus salary
• Box 440 (Tax chargeable): Corporation tax on the taxable profit
• Standard capital allowances for equipment, software, etc.
• No special IR35 adjustments needed

Example: Outside IR35 contractor

• Annual contract fees: £120,000
• Business expenses: £8,000
• Director's salary: £12,570
• Employer NIC: ~£1,136 (15% on £7,570 above the £5,000 secondary threshold — sole-director PSCs cannot claim Employment Allowance)

CT600:

• Trading income: £120,000
• Less expenses: £8,000
• Less salary: £12,570
• Less employer NIC: £1,136
• Taxable profit: ~£98,294
• Corporation tax: ~£22,300 (marginal relief applies)

Key expenses to claim

• Professional indemnity insurance
• Accountancy fees
• Travel to client sites (if not a permanent workplace)
• Equipment: laptop, monitors, software (claim capital allowances)
• Training (if relevant to current contracts)
• Home office costs (proportion of utilities, insurance)
• Pension contributions (employer contributions are a deductible expense)

Inside IR35: What Changes

IR35 status is determined under two different regimes depending on the size of your end client.

Chapter 10 — off-payroll (medium/large clients)

Since April 2021, medium and large clients must determine your IR35 status and operate PAYE on the deemed employment income if they conclude you are inside IR35. This is known as Chapter 10 of ITEPA 2003 (off-payroll working rules).

How the money flows under Chapter 10

1. Client determines you're inside IR35
2. The fee-payer (agency or client) deducts PAYE tax + employee NI + employer NI
3. Your PSC receives the net amount (much less than gross)
4. The director receives employment income via the fee-payer's payroll
5. Your PSC pays any residual amounts to the director from remaining funds

Impact on your CT600

When inside IR35 under Chapter 10, your PSC receives significantly less income:

Example: Inside IR35 Chapter 10 (£120,000 gross fee)

• Gross fee: £120,000
• Less employer NIC (15%): ~£15,700
• Less PAYE tax: ~£27,000
• Less employee NI: ~£5,500
• Amount paid to PSC: ~£71,800

Your CT600:

• Trading income: £71,800 (what PSC actually received)
• Less business expenses: £3,000
• Less any further salary from PSC funds: ~£68,800
• Taxable profit: ~£0
• Corporation tax: minimal

Critically, under Chapter 10 there is no deemed payment calculation at year-end by your PSC. The fee-payer has already accounted for PAYE and National Insurance upstream. Applying a deemed payment calculation on top of Chapter 10 deductions would double-count the same income.

Chapter 8 — small clients (PSC determines status)

If your end client is a small company (meeting the Companies Act small company criteria), they are exempt from the off-payroll rules. In this case — governed by Chapter 8 of ITEPA 2003 — your PSC is responsible for determining its own IR35 status. If it concludes the contract is inside IR35, it must calculate a deemed employment payment at year-end.

The deemed payment (Chapter 8 only)

For Chapter 8 inside IR35 engagements, the deemed payment calculation is:

1. PSC income from the relevant engagement
2. Less 5% flat-rate expenses deduction
3. Less actual salary already paid
4. Less employer NI on the deemed payment
5. = The deemed payment (subject to PAYE + NI)

The deemed payment ensures that most of the contract income is treated as salary, leaving little or no profit in the company.

CT600 for deemed payment (Chapter 8)

• The deemed payment is a salary expense on the CT600
• After the deemed payment, taxable profit should be near zero
• Employer NI on the deemed payment is also a deductible expense

Mixed Assignments: The Realistic Scenario

Most contractors have some contracts outside IR35 and some inside. This creates a more complex CT600.

How to handle mixed income

Your CT600 reports total company income and expenses regardless of IR35 status:

• Total trading income: Chapter 10 inside IR35 amounts (net received) + Chapter 8 inside IR35 amounts (gross received) + outside IR35 amounts (gross received)
• Total salary expense: Regular salary + any deemed payments for Chapter 8 inside IR35 work only — do not apply a deemed payment to Chapter 10 work
• Total expenses: All business expenses
• Taxable profit: Whatever remains after all deductions

Example: Mixed contractor

• Outside IR35 contracts: £80,000 gross
• Inside IR35 contracts (Chapter 10, off-payroll): £40,000 net received after fee-payer deductions
• Total PSC income: £120,000
• Salary (outside IR35 work): £12,570
• Employer NIC on salary: ~£1,136 (15% on £7,570 above £5,000 ST; Employment Allowance not available)
• Business expenses: £6,000
• Taxable profit: ~£100,294
• Corporation tax: ~£22,800 (marginal relief applies)

No deemed payment is calculated for the Chapter 10 portion — the fee-payer handled PAYE and NIC at source. A deemed payment would only arise if any inside IR35 engagements were Chapter 8 (small-client, PSC-determined).

Record-keeping for mixed assignments

Keep separate records for inside and outside IR35 engagements:

• Which contracts were determined inside IR35, and whether they were Chapter 8 or Chapter 10
• The Status Determination Statements (SDS) received for Chapter 10 engagements
• Net payments received per Chapter 10 engagement
• Any 5% expense deductions claimed on Chapter 8 inside IR35 work

The 5% Expense Allowance

For Chapter 8 contracts — where your PSC is responsible for its own IR35 determination (typically small-client engagements) — your PSC can deduct 5% of gross fees as a flat-rate expense allowance. This is instead of claiming actual expenses against that specific engagement.

This allowance is not available for Chapter 10 (off-payroll) engagements where the client or agency determines status.

How it works

• Applies to Chapter 8 contracts caught by IR35
• 5% of the gross fee (before tax/NI deductions)
• Covers office costs, travel, and other overheads
• You can still claim actual expenses for outside IR35 work

On the CT600

The 5% deduction is included in your total expenses. There's no separate box for it — it's part of your overall expense claim.

Employer NIC: The Hidden Cost

IR35's biggest financial impact is employer NIC. When outside IR35, your PSC has limited employer NIC exposure (on a modest salary). When inside IR35, employer NIC is deducted from your fees before they reach the PSC.

Outside IR35

• Salary: £12,570
• Employer NIC: ~£1,136 (15% on £7,570 above the £5,000 secondary threshold)
• Note: Employment Allowance is not available to companies where the sole director is the only employee paid above the secondary threshold
• Saving: employer NIC on the remaining contract income stays in the company

Inside IR35

• Deemed salary: ~£100,000+
• Employer NIC: ~£14,000+ (15% on earnings above the £5,000 secondary threshold)
• This is deducted before the money even reaches your PSC (Chapter 10) or calculated as part of the deemed payment (Chapter 8)

The employer NIC difference alone can be £12,000–£17,000 per year for a typical contractor.

Pension Contributions: Tax Efficiency for IR35

Whether inside or outside IR35, employer pension contributions are:

• A deductible expense for corporation tax
• Not subject to NI (employer or employee)
• Not treated as a benefit in kind

For inside IR35 contractors, maximising employer pension contributions is one of the few remaining tax planning strategies:

Example:

• Company makes £40,000 employer pension contribution
• Corporation tax saving: £40,000 × 25% = £10,000
• NI saving: £40,000 × 15% = £6,000
• Total saving: £16,000

Include employer pension contributions as an expense on your CT600.

Filing Your CT600 as a Contractor

Step 1: Calculate total income

Add up all payments received by your PSC during the accounting period. If you need help with specific CT600 boxes, see our box-by-box CT600 guide. For Chapter 10 inside IR35 contracts, this is the net amount after fee-payer deductions.

Step 2: Calculate salary + deemed payments

• Regular salary you've paid yourself
• For Chapter 8 (small-client, PSC-determined) inside IR35 contracts only: calculate the deemed payment at year-end. This does not apply to Chapter 10 off-payroll engagements where the fee-payer operated PAYE.
• Include employer NIC as a separate expense

Step 3: Total business expenses

• All allowable business expenses
• 5% flat-rate deduction for Chapter 8 IR35 contracts only (where your PSC determined its own status)
• Pension contributions
• Professional fees, insurance, equipment

Step 4: Calculate taxable profit

Income minus salary minus expenses = taxable profit.

Step 5: File with Taxpipe

Taxpipe's guided wizard walks you through every box. Enter your income, expenses, and salary — we calculate the corporation tax and file with HMRC. £59 per filing.

Common Contractor CT600 Mistakes

1. Treating inside IR35 income as gross

If the agency has already deducted tax and NI under Chapter 10, your PSC income is the net amount received, not the gross contract rate.

2. Applying a deemed payment to Chapter 10 work

If you work for a medium or large client that determined you were inside IR35 and deducted PAYE/NIC from your fees, your PSC does not also run a deemed payment calculation. The fee-payer has already handled it. Applying both double-counts the tax. The deemed payment only applies to Chapter 8 engagements where your PSC determines its own status for a small client.

3. Claiming the 5% allowance on off-payroll contracts

The 5% flat-rate expense deduction applies only to Chapter 8 (small-client, PSC-determined) engagements. It is not available for Chapter 10 off-payroll contracts. Don't assume it applies to all inside IR35 work.

4. Claiming travel as outside IR35 when inside

Travel to a workplace is only deductible if it's a temporary workplace. Inside IR35, the client's site is usually your permanent workplace — travel isn't deductible.

5. Missing pension contribution timing

Pension contributions must be paid (not just accrued) within the accounting period to be deductible on that year's CT600.

Frequently Asked Questions

Do I still need to file a CT600 if all my work is inside IR35?

Yes. Your PSC still exists and has income (even if reduced). You must file a CT600 for every accounting period.

Should I close my PSC if I'm always inside IR35?

Consider it. If all your work is inside IR35, the PSC adds admin cost with limited tax benefit. But keep it if you expect future outside IR35 work, want to claim employer pension contributions, or have trading losses to carry forward.

Can HMRC challenge my IR35 status through the CT600?

HMRC can open an enquiry into any aspect of your return, including whether contracts were correctly treated as inside or outside IR35. Keep your Status Determination Statements and contracts.

What about the flat-rate VAT scheme?

The flat-rate VAT scheme is separate from IR35 and your CT600. If you're on it, your VAT surplus or deficit appears in your accounts but doesn't change the CT600 calculation directly.

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Contractor filing your CT600? Use Taxpipe — handles inside IR35, outside IR35, and mixed assignments. Guided entry, HMRC filing, just £59.