Does IR35 affect how I need to do my bookkeeping?

Yes, significantly. Outside IR35, your PSC trades normally — you invoice clients, the company receives the income, and you need full bookkeeping: monthly bank reconciliation, VAT returns, payroll for your director salary, and annual Corporation Tax. Inside IR35, the client or their agency deducts tax and NIC before paying you, so the company receives a net amount. The bookkeeping is simpler but you still need to track the deemed employment payments, reconcile what was deducted, and file a Self Assessment return to declare all income including dividends from the company's retained profits.

Can an Indian CA help with my IR35 status determination?

An Indian CA can help you prepare and document your IR35 position — gathering the evidence that supports an outside-IR35 determination, such as contracts showing right of substitution, lack of mutuality of obligation, and control. However, the formal IR35 status determination for engagements with medium and large clients (Chapter 10 ITEPA 2003) must be made by the client as the deemed employer. An Indian CA can advise and prepare the supporting documentation; the legal determination sits with the client organisation.

What bookkeeping does a PSC outside IR35 need each month?

A Personal Service Company operating outside IR35 typically needs: monthly transaction coding and bank reconciliation, quarterly VAT return preparation (most PSCs register for VAT above the £90,000 threshold quickly), monthly payroll for the director's salary and Real Time Information (RTI) submission to HMRC, pension contribution tracking, and annual accounts with Corporation Tax computation. Sharma Jyoti and Co handles all of this for UK contractor PSCs at £8–£15 per hour.

I'm inside IR35 — do I still need an accountant?

Yes. Inside IR35, your client deducts income tax and National Insurance before paying your PSC, but you still need to file a Self Assessment return each year to declare all income — including any dividends you take from retained profits in the company, interest income, and any outside-IR35 contracts running concurrently. You also still need to file annual Corporation Tax and Companies House accounts for the PSC itself, even if trading activity is minimal. An Indian CA firm handles this at a fraction of UK contractor accountant rates.

How much does a contractor accountant cost in the UK?

UK contractor accountants typically charge £100–£200 per month for a managed service covering bookkeeping, VAT, payroll, Corporation Tax, and Self Assessment. Some specialist contractor accountancy firms charge £150–£250 per month. Sharma Jyoti and Co provides equivalent services for UK contractor PSCs at £80–£150 per month depending on transaction volume — saving £600–£1,200 per year versus a UK-based contractor accountant.

IR35 Bookkeeping for UK Contractors

IR35 — Inside vs Outside: What the Rules Actually Mean for Your Accounts

IR35 (formally the off-payroll working rules under Chapter 8 and Chapter 10 of ITEPA 2003) determines whether HMRC treats a contractor's income as employment income or genuine business income. The bookkeeping and tax obligations differ significantly depending on which side of the line you fall.

Outside IR35 means HMRC accepts that your engagement is genuinely a business-to-business arrangement, not disguised employment. Your Personal Service Company (PSC) invoices the client for the full contract rate, receives the gross payment, and pays tax in the normal way — Corporation Tax on profits, income tax on your salary, and income tax on dividends you take from retained profits.

Inside IR35 means HMRC treats the engagement as if you were an employee of the client. The client (or the agency, for medium and large clients) deducts income tax and National Insurance before paying your PSC. Your PSC receives a net amount after these deductions, which HMRC calls the deemed employment payment. The PSC still exists and still needs annual accounts and Corporation Tax filings, but the trading picture is quite different.

Which rules apply to your engagement? Since April 2021, medium and large private sector clients determine IR35 status and issue a Status Determination Statement (SDS). For small client companies (two of: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees), the contractor's own PSC still self-determines its IR35 status. In the public sector, the client has determined status since April 2017.

Outside IR35 — What Bookkeeping Your PSC Needs Each Month

A contractor PSC operating outside IR35 is a trading limited company. It needs the same bookkeeping as any other limited company — just with a simpler income profile (typically one or two clients, one invoice per month or week). The work is not complex, but it needs to be done correctly and on time to avoid HMRC penalties.

The monthly bookkeeping tasks for a contractor PSC outside IR35:

Transaction coding and bank reconciliation — matching contract payments received to invoices raised, coding business expenses (subscriptions, equipment, travel, professional fees)
Expenses review — contractor expenses are subject to specific HMRC rules; mileage, home office, equipment, and professional subscriptions have different treatments
Director payroll — most contractor PSCs pay a small director salary (typically at the National Insurance threshold, around £9,100–£12,570/year) plus dividends; payroll must be processed and RTI submitted to HMRC each pay period
Quarterly VAT return preparation — most contractor PSCs exceed the £90,000 VAT threshold quickly and must register; the Flat Rate Scheme is worth reviewing for contractors (often saves VAT versus standard accounting)
Dividend recording — each dividend payment must be properly documented with a board minute and dividend voucher; undocumented dividends create risk on HMRC investigation

At year-end, the PSC needs annual accounts (FRS 105 micro-entity accounts for most small PSCs), a Corporation Tax return (CT600), and Companies House filing. The tax preparation service at Sharma Jyoti and Co covers the CT600 and Corporation Tax computation as part of the year-end package.

Inside IR35 — What Changes for Your Tax and Bookkeeping

Inside IR35, the income flow and the bookkeeping picture change materially. The client or agency deducts income tax (at 20% or 40% depending on your total income) and employee National Insurance (12% or 2%) from the gross contract rate before paying your PSC. The PSC also loses the employer's NIC deduction (13.8%) — this is paid by the deemed employer (the client or agency).

What your PSC receives is a net deemed employment payment. The bookkeeping for this looks different:

Item	Outside IR35	Inside IR35
Income received by PSC	Gross contract rate	Net after tax and NIC deductions
Corporation Tax on profits	Yes — on normal trading profit	Minimal — PSC profit is low after the deemed payment
Dividend extraction	Tax-efficient — dividends taxed at lower rates	Limited — little retained profit to distribute
Self Assessment return	Yes — for salary and dividends	Yes — to declare deemed employment income and any other sources
VAT	Yes — if above threshold	Yes — if PSC is VAT registered, but deemed employment payment is outside scope of VAT
Annual accounts / CT600	Yes — full trading accounts	Yes — even if minimal trading activity

The most common mistake inside-IR35 contractors make is assuming the company no longer needs proper accounts because the tax has already been deducted at source. The PSC is still a live company — it still has Companies House filing obligations, and HMRC will still expect a CT600 each year. Failing to file either results in automatic penalties.

IR35 Status Determination — What to Keep on File

For contractors who self-determine their IR35 status (small client engagements, pre-April 2021 private sector contracts), maintaining a clear record of the factors supporting an outside-IR35 position is essential. If HMRC opens an enquiry, the burden of proof falls on the contractor.

Key evidence to keep on file for each outside-IR35 engagement:

The contract itself — must include a genuine right of substitution (the right to send a suitably qualified replacement), absence of mutuality of obligation (no requirement for the client to offer work or for you to accept it), and limited control over how the work is performed
Evidence of substitution rights being exercised — if you have ever sent a substitute, document it; even if you have not, document that the right exists and was not blocked by the client
Evidence of working in business — multiple clients, your own equipment, business insurance, marketing materials, a business bank account separate from your personal account
HMRC CEST tool result — while not legally binding, running the Check Employment Status for Tax tool and printing the result demonstrates you considered the question properly
Status Determination Statement from the client — for medium/large clients (from April 2021), the client must provide an SDS; keep a copy for every engagement

An Indian CA firm cannot make the legal IR35 determination for medium or large client engagements — that sits with the client as deemed employer. But it can help you structure and document your position, review your contract for IR35 risk indicators, and advise on the financial planning implications of an inside-IR35 determination.

Cost Comparison — UK Contractor Accountant vs Indian CA Firm

UK contractor accountants have built a specific market around PSC compliance, often bundling bookkeeping, payroll, VAT, Corporation Tax, and Self Assessment into a monthly fee. The pricing reflects both the compliance work and the IR35 advice element:

Provider	Monthly fee	Annual cost	What's included
UK contractor accountant (specialist)	£120–£200/mo	£1,440–£2,400	Bookkeeping, VAT, payroll, CT600, Self Assessment
General UK accountant (small firm)	£80–£150/mo	£960–£1,800	Year-end only; bookkeeping often extra
Sharma Jyoti and Co (India)	£60–£130/mo	£720–£1,560	Bookkeeping, VAT prep, payroll, CT600 workpapers, Self Assessment workpapers

The saving versus a UK specialist contractor accountant is £720–£840 per year — meaningful for a contractor operating through a PSC who is already managing a high tax burden. The service scope is comparable: monthly bookkeeping, VAT return preparation, payroll, and year-end Corporation Tax. The one difference is that a UK-based contractor accountant may offer IR35 status reviews and contract reviews as part of their service; Sharma Jyoti and Co focuses on the compliance and bookkeeping work rather than IR35 legal advice.

What an Indian CA Firm Handles for UK Contractor PSCs

The bookkeeping and compliance scope Sharma Jyoti and Co covers for UK contractor PSCs:

Monthly transaction coding in Xero, QuickBooks, or FreeAgent — contractor expense categories properly applied
Bank reconciliation — contract income matched to invoices, expenses to receipts
Director payroll — salary calculated against NI threshold, RTI filed with HMRC each pay period
Quarterly VAT return preparation — standard or Flat Rate Scheme depending on your registration
Dividend vouchers and board minutes — proper documentation for each distribution
Annual accounts preparation — FRS 105 micro-entity accounts for Companies House
Corporation Tax computation and CT600 workpapers — your UK accountant or we file with HMRC
Self Assessment workpaper preparation — income from salary, dividends, and any other sources, ready for filing

What we do not do: formal IR35 contract reviews, Status Determination Statement challenges, or HMRC investigation representation. For these, you need a UK-based IR35 specialist or employment tax adviser. For the routine annual compliance that every PSC needs regardless of IR35 status, we handle it at Indian CA rates.

About This Article
Written by Sharma Jyoti, CA (ICAI) — Founder, Sharma Jyoti and Co. We are an ICAI-registered Chartered Accountant firm providing outsourced bookkeeping and accounting services to Australian, US, UK and Canadian businesses. Learn more about our firm →

Frequently Asked Questions

Yes, significantly. Outside IR35, your PSC trades normally — you invoice clients and need full bookkeeping: bank reconciliation, VAT, payroll, and Corporation Tax. Inside IR35, the client deducts tax before paying your PSC, so the company receives a net amount. The bookkeeping is simpler, but you still need annual accounts, a CT600, and a Self Assessment return for salary and dividends.

An Indian CA can help you prepare and document your IR35 position — gathering evidence of substitution rights, absence of mutuality of obligation, and limited control. However, for medium and large client engagements (post April 2021), the formal IR35 status determination must be made by the client as the deemed employer. An Indian CA advises and prepares documentation; the legal determination sits with the client.

A PSC outside IR35 needs: monthly transaction coding and bank reconciliation, quarterly VAT return preparation, director payroll and RTI submission, dividend vouchers and board minutes for each distribution, and annual accounts with a CT600. Sharma Jyoti and Co handles all of this for UK contractor PSCs at £8–£15 per hour.

Yes. Inside IR35, you still need to file a Self Assessment return each year to declare all income — including dividends from retained profits and any outside-IR35 contracts. The PSC also still needs annual Corporation Tax and Companies House accounts. Failing to file either results in automatic penalties from HMRC and Companies House.

UK specialist contractor accountants charge £120–£200 per month for a managed service covering bookkeeping, VAT, payroll, CT600, and Self Assessment. Sharma Jyoti and Co provides equivalent compliance services for UK contractor PSCs at £60–£130 per month — saving £600–£1,200 per year versus a UK-based contractor accountant.

IR35 Bookkeeping for UK Contractors — Outsourcing to India