Contractor Payroll UK —
IR35 Compliant, Tax-Efficient, Stress-Free
Specialist payroll for UK contractor businesses — IR35 compliant payroll processing for both inside and outside IR35 engagements, PSC salary and dividend management, umbrella company comparisons and multi-contractor payroll. ACCA qualified IR35 specialists.
Contractor Payroll — Why It’s Different
Payroll for contractors is fundamentally different from standard employee payroll — IR35 status, personal service company (PSC) structure, dividend vs salary decisions and compliance with off-payroll working rules all create a complex picture that requires specialist knowledge to navigate correctly.
Outside IR35 via PSC: Contractors working outside IR35 through their own limited company can optimise their tax position significantly. The most tax-efficient approach is typically a small salary (aligned to the personal allowance or NIC threshold) plus dividends from company profits — minimising NIC while maximising take-home pay. We calculate the optimal salary/dividend split for each tax year based on your income and personal circumstances.
Inside IR35: Contractors caught by IR35 must have PAYE tax and NIC deducted on their deemed employment income — either by the fee payer or via their PSC. The payroll setup for inside IR35 engagements requires specific RTI treatment to avoid double taxation. We set up and process inside IR35 payrolls correctly, ensuring you’re compliant without overpaying tax.
Umbrella vs PSC: For contractors uncertain about their status or with short-term engagements, we provide a genuine comparison of umbrella company vs PSC structures — including real net-of-tax take-home calculations for each option — so you make the right choice for your specific situation.
✅ What’s Included
- ✓ IR35 status assessment
- ✓ Optimal salary/dividend calculation
- ✓ PSC payroll processing (RTI)
- ✓ Inside IR35 payroll (off-payroll)
- ✓ Deemed payment calculation
- ✓ Director payslips
- ✓ Dividend vouchers
- ✓ Umbrella vs PSC comparison
- ✓ Multi-contractor payroll
- ✓ Annual review & restructure advice
- ✓ HMRC correspondence handled
Contractor Tax — The Key Numbers
Contractor Payroll — Common Questions
For 2024/25, the most commonly recommended contractor director salary is £12,570 (the personal allowance), taking full advantage of the tax-free allowance without triggering income tax. Some advisers recommend £9,100 (the NIC Lower Earnings Limit) to avoid any NIC while still accruing NIC qualifying years. The optimal amount depends on your specific circumstances — other income, whether Employment Allowance is available and your dividend income. We calculate the optimal salary for each client individually every tax year.
Yes — if you’re a director of a limited company taking any salary, you need to operate a PAYE scheme and run payroll. Even if your salary is below the NIC threshold, you should file RTI submissions to HMRC to maintain a record of your director salary and ensure any Employment Allowance or NIC credits are correctly recorded. We set up and run director payrolls for all contractor clients as part of our contractor accounting service.
It depends on your circumstances. A limited company (PSC) is generally more tax-efficient for contractors earning above approximately £25,000/year working outside IR35 — the salary/dividend split saves significant NIC. An umbrella company is simpler and may be more appropriate for short-term or low-value contracts, inside IR35 engagements, or contractors who don’t want the admin of running a company. We provide a genuine net-of-tax take-home comparison for both options based on your specific income.
If your engagement is inside IR35, the fee payer (your client or the agency) is typically responsible for deducting PAYE and NIC before paying your PSC (or you directly). Inside IR35, your PSC receives the net-of-tax amount from the fee payer — there is no further tax to pay on that income, but it must be processed correctly to avoid double taxation. We set up inside IR35 payroll treatment correctly for all affected contractors to ensure you pay no more tax than you legally owe.
Yes — we act as your representative in HMRC IR35 compliance checks and investigations. We review your contracts and working practices, prepare the technical defence, respond to HMRC correspondence and negotiate on your behalf. Having a qualified IR35 specialist handle your defence from the outset significantly improves the outcome and reduces the risk of a costly HMRC determination. Prevention is always better than cure — we recommend our IR35 contract review service for all contractor clients.
Contractor Payroll — Done Right
Book a free consultation and we’ll review your IR35 status, set up your payroll correctly and calculate your optimal salary/dividend split. Fixed fee, expert advice.
Which Businesses Need This Service?
IT & Tech Contractors
IT contractors are the most commonly affected by IR35 — operating through a PSC in a sector where HMRC scrutinises engagements closely. We provide IR35 status assessments, contract reviews and fully compliant payroll for both inside and outside IR35 engagements.
Engineering & Management Consultants
Senior consultants placed with large clients are increasingly subject to Chapter 10 off-payroll working rules — requiring the client to determine IR35 status. We advise on status, review working practices and ensure the correct payroll treatment is applied.
Interim Managers & FDs
Interim executives engaged on short-term contracts face complex IR35 and payroll questions — particularly around supervision, direction and control. We advise on the most appropriate engagement structure and manage payroll accordingly.
Overseas Contractors Working in the UK
Non-UK contractors working in the UK through their own company face additional complexity — UK tax residency, double tax treaty positions, social security obligations and UK PAYE requirements for UK workdays. We manage contractor payroll for internationally mobile individuals with UK engagements.
4 Costly Mistakes — And How Britvex Prevents Them
Many contractors assume their outside IR35 status without having it formally assessed. Since the off-payroll working reforms of April 2021, medium and large private sector clients determine IR35 status for engagements — not the contractor. An undocumented or incorrect determination exposes both contractor and client to HMRC retrospective assessment. We review every contract and working arrangement and provide written status opinions.
Contractors with inside IR35 engagements who continue to pay themselves primarily via dividends are creating a serious HMRC risk. Inside IR35 income must be subject to PAYE — paying it as dividends instead is tax avoidance that HMRC actively investigates. We advise on the correct extraction strategy for each engagement type and ensure dividends are only paid from genuinely outside IR35 income.
IR35 determinations are often based on working practices as much as contract terms. HMRC will ask detailed questions about substitution rights, supervision and control, and financial risk in any investigation. Contractors who don’t keep contemporaneous records of how their engagement actually operates are at a significant disadvantage in any HMRC challenge. We advise on what records to keep and how.
Many contractors use umbrella companies without calculating their true net take-home compared to a PSC. Umbrella companies deduct employer NIC (13.8%), employee NIC (8%), income tax and the umbrella margin from the contractor’s contract rate — often leaving significantly less than a properly run PSC outside IR35. We provide honest net-of-all-costs comparisons for every client.
Fixed Fees — Agreed Upfront, No Surprises
Every Britvex fee is fixed and agreed before we start. No hourly rates, no surprise invoices. Book a free consultation for your exact quote.
All packages include: dedicated accountant · HMRC agent · client portal · 2-hour response guarantee.
The Law That Applies to You
ITEPA 2003 Chapter 8 (IR35) and Chapter 10 (off-payroll working): Chapter 8 applies where the contractor’s own PSC determines its IR35 status (small clients). Chapter 10 applies to medium and large clients — shifting responsibility for status determination to the client. Contractors must understand which chapter applies to each engagement and ensure the correct payroll treatment is in place.”),
IR35 status tests: HMRC uses three primary tests to assess IR35 status — substitution (can the contractor send a substitute?), control (does the client control how the work is done?) and mutuality of obligation (is there an obligation to offer and accept work?). Secondary indicators include financial risk, provision of equipment, integration and the right of dismissal. No single test is determinative — HMRC considers the overall picture.”),
HMRC’s Check Employment Status for Tax (CEST): HMRC’s online CEST tool can be used to make an IR35 determination, and HMRC has confirmed it will stand by CEST results used correctly. However, CEST has limitations — it doesn’t consider all relevant factors and has been criticised by courts and tribunals. We use CEST as a starting point but supplement it with a detailed contractual and working practices review.”),
Disguised remuneration and loan charge: Contractors who used disguised remuneration schemes (contractor loans) face the loan charge on outstanding balances. If you used such a scheme, we can advise on settlement with HMRC and the most appropriate approach to resolving your position.
📋 Contractor Tax Key Figures 2024/25
- £12,570 Personal allowance — optimal director salary
- £500 Dividend allowance (reduced from £1,000)
- 8.75% Basic rate dividend tax
- 33.75% Higher rate dividend tax
- 25% Corporation Tax rate (profits above £250k)
- 19% Small profits rate (profits below £50k)
- 13.8% Employer NIC — saved via salary sacrifice