What Does an Accountant for IT Contractors Actually Do?

If you are an IT contractor working through your own limited company, your accountant is not just someone who files your year-end return. They are the person who keeps you compliant with IR35, manages your VAT, runs your payroll, and makes sure you are not overpaying tax by thousands of pounds each year.

A general practice accountant who handles corner shops and hairdressers will not cut it. IT contracting has specific rules around IR35, expenses, VAT schemes, and dividend planning that a non-specialist simply does not know well enough. You need an accountant for IT contractors who deals with this stuff every day.

Here is exactly what that service includes, what it costs, and how to choose the right firm for your situation.

Why IT Contractors Need a Specialist Accountant

IT contracting is not like other self-employed work. The tax rules that apply to a freelance graphic designer or a plumber are the same in principle, but the practical application is different for a contractor operating through a limited company with an outside-IR35 contract worth £500 a day.

The main issues that make IT contractors different are:

• IR35 compliance. Your accountant needs to understand off-payroll working inside out. They should review your contracts, assess your working practices, and advise on whether HMRC would see you as inside or outside IR35.
• VAT schemes. Many IT contractors use the Flat Rate Scheme (FRS) or the standard VAT scheme. Your accountant should tell you which one saves you the most money based on your specific costs.
• Dividend and salary planning. The most tax-efficient way to pay yourself changes every year as the thresholds and rates move. A good contractor accountant recalculates this for you at the start of each tax year.
• Expense claims. IT contractors can claim a wide range of expenses, from software licences and training courses to travel to client sites and home office costs. Getting these right is essential.
• R&D tax credits. If you build software or develop new technical solutions, you may qualify for R&D tax credits even as a one-person company. A specialist accountant will spot this.

A general accountant might miss half of these. A specialist accountant for IT contractors builds their entire practice around them.

What an IT Contractor Accountant Actually Does for You

Here is the full list of services a good contractor accountant should provide. If a firm does not offer all of these, ask why.

Company Formation and Structure Advice

If you are incorporating for the first time, your accountant should either handle the company formation or guide you through it. They should advise on share structure (ordinary shares, alphabet shares if you have a partner), the registered office address, and the director appointment process.

They should also explain the incorporation process in plain English, including what happens to your existing contracts and whether you need to register for VAT immediately.

IR35 Status Reviews and Ongoing Support

IR35 is the single biggest risk for IT contractors. If HMRC decides you are inside IR35, you could owe thousands in unpaid tax and NIC, plus interest and penalties.

Your accountant should review each new contract and give you a written opinion on your IR35 status. They should also help you prepare for an HMRC enquiry if one comes. This is not a one-off check. It needs to happen every time you start a new contract or your working practices change.

For contracts inside IR35, your accountant should calculate the deemed employment income and make sure your payroll is set up correctly to handle the tax and NIC deductions at source.

VAT Registration and Returns

The VAT registration threshold is £90,000 in 2025/26. If your turnover is above that, you must register. Many IT contractors register voluntarily even below the threshold because they can reclaim VAT on their expenses and software.

Your accountant should advise on which VAT scheme suits you. The Flat Rate Scheme can save IT contractors money if your eligible goods spending is low. But the limited cost trader rules (introduced in 2017) mean many contractors are better off on the standard scheme. Your accountant should run the numbers both ways.

They should also file your VAT returns quarterly (or monthly if you prefer) and handle any VAT enquiries from HMRC.

Payroll and Dividend Administration

Every limited company must run a payroll, even if the only employee is the director. Your accountant should handle this through software like Xero, FreeAgent, or BrightPay.

They should calculate the optimal salary and dividend split for your situation. For most IT contractors in 2025/26, the most efficient approach is a salary of £12,570 (the personal allowance threshold) and dividends up to the basic rate band. But this changes if you have other income, if you are inside IR35, or if your spouse is a shareholder.

Your accountant should also issue your P60, P45, and P11D (if you have benefits) on time.

Bookkeeping and Software Setup

Most contractor accountants include bookkeeping software in their fee. The most common options are FreeAgent (which is free with many bank accounts) and Xero. Your accountant should set up the chart of accounts, connect your bank feed, and show you how to categorise transactions.

Some accountants offer a full bookkeeping service where they do everything for you. Others expect you to upload receipts and tag transactions, and they review and adjust before filing. Make sure you know which model you are paying for.

Year-End Accounts and Corporation Tax

Your accountant prepares the annual accounts (balance sheet, profit and loss, and notes) and files them with Companies House. They also file the CT600 corporation tax return with HMRC and calculate the corporation tax due.

For a typical IT contractor with profits under £50,000, the corporation tax rate is 19%. If your profits are between £50,000 and £250,000, marginal relief applies and the effective rate sits between 19% and 25%. Your accountant should calculate this accurately and make sure you are not overpaying.

Self Assessment for Directors

Even though the company pays corporation tax, you as a director still need to file a personal self assessment tax return (SA100) each year. Your accountant should prepare this for you, including your salary, dividends, and any other income or gains.

They should also calculate your payments on account (due 31 January and 31 July) and tell you exactly what to pay and when.

HMRC Enquiry Protection

If HMRC opens an enquiry into your company or your personal return, your accountant should handle the entire process. This includes preparing the response, providing supporting documents, and negotiating with HMRC if needed. Many contractor accountants include enquiry protection in their fee or offer it as an add-on.

How Much Does an Accountant for IT Contractors Cost?

Fees vary depending on the level of service and the firm's location. Here are typical ranges for 2025/26:

• Basic online service: £100 to £150 per month. This usually includes software, year-end accounts, corporation tax, and self assessment. You do most of the bookkeeping yourself.
• Full managed service: £150 to £250 per month. The accountant handles your bookkeeping, VAT returns, payroll, and year-end. You just send them your receipts and invoices.
• Premium service (with IR35 reviews and ongoing advice): £250 to £400 per month. This includes contract reviews, IR35 assessments, tax planning, and unlimited advice. Worth it if you have complex contracts or high day rates.

Some firms charge a one-off setup fee (typically £50 to £150) for company formation and initial software setup. Others include this in the monthly fee.

These fees are generally tax-deductible as a business expense, so the net cost to you is lower after corporation tax relief.

How to Choose the Right Accountant for Your Situation

Not all contractor accountants are the same. Here is what to look for:

• ICAEW or ACCA qualified. This is a basic requirement. Anyone can call themselves an accountant. Qualified status means they are regulated and insured.
• IR35 expertise. Ask them how many IR35 reviews they do per year. If the answer is vague, keep looking.
• Software preference. If you already use Xero, FreeAgent, or QuickBooks, make sure your accountant works with it. If not, ask which one they recommend and why.
• Client base. Ask what proportion of their clients are IT contractors. A firm that works mainly with IT contractors will understand the specific issues you face.
• Communication. Do they respond to emails within 24 hours? Do they have a dedicated contact person? Or do you get a different person every time you call?
• Transparent pricing. Avoid firms that hide their fees or charge extra for basic services like filing a VAT return or issuing a P60.

As ICAEW qualified accountants at Holloway Davies, we work with IT contractors across the UK, from solo developers in Shoreditch to six-figure consultants in Manchester's Northern Quarter and teams of contractors in Birmingham's Jewellery Quarter. We know the rules and we keep you compliant.

Common Mistakes IT Contractors Make With Their Accounting

Here are the most common errors we see:

• Using a non-specialist accountant. A high street accountant who does not understand IR35 can cost you thousands. We have seen contractors pay £15,000+ in back taxes because their accountant missed an IR35 issue.
• Not reviewing IR35 status regularly. Your IR35 status can change when your contract or working practices change. A review every 12 months is not enough. Every new contract needs a fresh assessment.
• Paying too much VAT. Many contractors stay on the Flat Rate Scheme when the standard scheme would save them more. This is especially common if you have significant expenses or if you are a limited cost trader.
• Mixing personal and business expenses. This creates extra work at year-end and can trigger HMRC enquiries. Keep a separate business bank account and use it for everything.
• Ignoring R&D tax credits. If you develop software, build tools, or solve technical problems, you may qualify. Many contractors leave thousands on the table because they do not know the rules.

What Happens If You Do Not Use a Specialist Accountant

Let us be direct. If you use a general accountant who does not understand IT contracting, you risk:

• Paying more tax than necessary because of poor salary/dividend planning.
• Falling foul of IR35 and facing a retrospective tax bill plus interest and penalties.
• Missing the VAT Flat Rate Scheme or limited cost trader rules, costing you hundreds per quarter.
• Filing incorrect returns that trigger an HMRC enquiry.
• Losing time dealing with HMRC correspondence that a specialist would handle in minutes.

A specialist accountant for IT contractors is not a luxury. It is a business expense that pays for itself through tax savings and compliance peace of mind.

Getting Started: What to Do Next

If you are already contracting through a limited company, ask your current accountant these questions:

• What is my optimal salary and dividend split for 2025/26?
• Am I on the right VAT scheme?
• Have you reviewed my latest contract for IR35?
• Do I qualify for R&D tax credits?

If they cannot answer clearly, it is time to switch.

If you are about to start contracting for the first time, speak to a specialist before you incorporate. The decisions you make at the start (share structure, VAT registration, accounting software) affect your tax position for years.

We work with IT contractors across the UK. If you want to discuss your situation, get in touch. We will tell you honestly whether we are the right fit for you.

If you want to understand the basics first, our fundamentals guide covers the core rules every contractor should know. Or visit our limited company tax blog for articles on specific topics like IR35, dividend planning, and expense claims.