Accountants for UK Agencies, Consultants and Freelancers
Most agency owners and independent professionals did not set up the business to think about IR35. They did it for the freedom, the rates, or the chance to build something of their own. But UK contracting and consulting work runs on rules most other industries don't share — IR35 status determinations, retainer-based revenue recognition, dividend tax planning for owner-managed companies, and the recent April 2026 dividend rate increases that affect almost every limited company owner. Get any of it wrong and the cost lands directly in your take-home pay.
We handle all of it.
NDCA is an ACCA-regulated accountancy practice working with UK agencies, management consultants, freelance professionals, contractors and independent specialists, working primarily on Xero. We charge a fixed monthly fee so your bookkeeping, IR35 documentation and tax position are managed every month — not panicked at the right deadline.
Contact us today for a free consultation to walk through your situation.
The April 2026 dividend rate increases — what changed
From 6 April 2026, dividend tax rates rose for the first time since 2022. The new rates:
- Basic rate (income £12,571–£50,270): 10.75% (up from 8.75%)
- Higher rate (income £50,271–£125,140): 35.75% (up from 33.75%)
- Additional rate (income above £125,140): 39.35% (unchanged)
The dividend allowance remains at £500. It was £2,000 until April 2023, £1,000 from April 2023, and reduced again to £500 from April 2024.
For a director-shareholder taking a £12,570 salary and £40,000 in dividends, the new dividend tax bill is approximately £4,697 — up from £3,907 under the previous rates. That is roughly £790 extra per year for the same profit extraction. Worth recalculating the salary/dividend mix against your actual income. Multiply that across the typical lifespan of an owner-managed company and the planning conversation matters more than ever.
We model the most tax-efficient extraction strategy for each director based on the current rates — not last year’s. Common options:
- Optimised salary level — typically £12,570 to use the full personal allowance, or £5,000 / £9,100 in some setups
- Pension contributions from the company — allowable against corporation tax, no income tax or NIC for the director
- Spousal share planning — issuing shares to a non-working or lower-rate spouse to use their allowances
- Retained profits — leaving profits in the company where short-term cash isn’t needed
- Director’s loan account management — drawing from credit balances rather than dividends where possible
The right combination depends on your income level, household position, and longer-term plans. We model the alternatives at every year-end.
IR35 — the rules every consultant and contractor needs to know
IR35 (the off-payroll working rules) determines whether a contractor working through a limited company is genuinely self-employed for tax purposes, or a "disguised employee" who should be paying tax broadly the same as a direct employee. Get the status wrong, and the consequences range from a higher tax bill to HMRC enquiries with interest and penalties.
Who decides your IR35 status
For contractors working through a Personal Service Company (PSC):
- End client is medium or large — the end client determines your IR35 status, issues a Status Determination Statement (SDS), and is responsible for the tax. This has been the rule since April 2017 (public sector) and April 2021 (private sector).
- End client is small — you determine your own IR35 status and bear the responsibility for getting it right.
What counts as a “small” end client
The Companies Act small company thresholds increased from 6 April 2025. For IR35 purposes, the new thresholds apply to status decisions from 6 April 2026. A client qualifies as “small” if it meets at least two of three tests:
- Annual turnover not more than £15 million (up from £10.2m)
- Balance sheet total not more than £7.5 million (up from £5.1m)
- No more than 50 employees (unchanged)
The threshold increase pushes many more medium-sized end clients into the “small” category — meaning more contractors are responsible for their own IR35 determinations, rather than relying on the client to do it. The practical impact lands a year later than the headline date suggests: IR35 size is assessed against the preceding two accounting periods, so most contractors will only feel the change at the start of the 2027/28 tax year. HMRC estimates around 14,000 end clients are reclassified as “small” under the new thresholds.
The April 2024 set-off mechanism
A welcome change for both end clients and contractors. From 6 April 2024, where HMRC determines an engagement was wrongly classified as outside IR35, any corporation tax, dividend tax, or income tax already paid by the contractor or their PSC on the same income is now offset against the PAYE bill the end client has to pay. Previously, HMRC could pursue the full PAYE liability without crediting tax already paid — a double-tax outcome that made end clients risk-averse and led to widespread “blanket” inside-IR35 determinations.
The set-off mechanism reduces the financial cost of an incorrect determination and is expected to ease some of the over-cautious blanket decisions seen since 2021.
The April 2026 umbrella company reforms
oint and Several Liability rules for unpaid PAYE tax took effect from 6 April 2026. Where an umbrella company fails to operate PAYE correctly, the end client and any recruitment agency in the labour supply chain can be held jointly liable for the unpaid tax — not just the umbrella itself.
For contractors working through compliant umbrellas, the changes should improve the market by pushing rogue operators out. For end clients and agencies, the compliance burden of vetting umbrella partners has risen. We advise both contractors and agency clients on the practical implications.
Determining your own status
Where you’re responsible for the determination, the three core tests are:
- Control — does the end client direct what work you do, when, and how?
- Substitution — could you genuinely send someone else to do the work in your place?
- Mutuality of obligation — is there an ongoing obligation to provide and accept work?
Inside IR35 means treating the income as employment income with PAYE and NIC. Outside IR35 means you can extract the income through dividends. The right answer depends on the actual working practice, not just the contract wording. We help contractors document the position and review actual practice against the contract.
Retainer revenue and project income — accounting for agencies
Most agencies run on a mix of monthly retainers and project-based work. Each has its own revenue recognition treatment, and getting it right matters for cash flow forecasting, management accounts, and (occasionally) VAT timing.
Monthly retainers
A £5,000 retainer covering a calendar month of work is recognised as £5,000 of revenue in that month. Simple. The complication arises when retainers are invoiced quarterly or annually upfront — under UK GAAP (FRS 102), the cash is received but the revenue is recognised over the service period, with the unearned balance held as deferred income on the balance sheet. We set up Xero to track this cleanly.
Project-based work
Fixed-fee projects spanning multiple months should be recognised on a percentage-of-completion basis where the work is substantial — not all upfront on invoice, and not all at the end on delivery. The percentage-of-completion approach matches revenue against costs and gives management accounts that reflect the real economic picture. For shorter projects or those with milestone-based billing, alternative methods apply.
Discounts, recoverable expenses and disbursements
Discounts off retainers reduce revenue, not increase costs. Recoverable expenses (where you pass on costs to the client at face value) need careful VAT treatment to avoid double-counting. Disbursements paid on behalf of the client (advertising spend on behalf of a client, hosting paid through your account) have different VAT treatment depending on whether you’re acting as principal or agent. We apply the right treatment to each.
The tax issues consultants and agencies ask us about most
Holding multiple contracts simultaneously
Each contract has its own IR35 position — running them in parallel needs careful documentation.
Many consultants work for two or three end clients at any one time. Each engagement is assessed for IR35 separately. One client may be outside IR35, another inside, a third small enough that you determine your own status. The administrative burden of running parallel contracts under different rules is real. We track the position for each engagement and run payroll and dividend planning around the mix.
Recruitment agency commission
Agencies acting as recruiters earn commission income that’s straightforward — but the timing matters.
Recruitment commission is generally recognised when the candidate is placed and the placement fee is invoiced. Rebate periods (where a fee is partially refundable if the candidate leaves within a defined window) create a contingent liability that should be provided for in the accounts. We provision properly and unwind on the rebate window’s expiry.
VAT for international services
Most agency and consulting work to overseas clients is outside the scope of UK VAT.
For B2B sales of services to a customer in another country, the place of supply is usually the customer’s country and you do not charge UK VAT. The customer accounts for the VAT on their own return under the reverse charge mechanism. We make sure your invoices include the right wording, and that overseas B2B sales sit on the correct VAT return line.
Director’s loan accounts
Where the company owes you money, drawings are tax-free until the loan is repaid.
Many limited company directors lend money to their company at incorporation, in the form of unpaid invoices, share capital, or actual cash. Repayments of those loans are not income and are tax-free. We track director’s loan balances and structure drawings to use loan repayments before dividends where available.
Sole-trader consultants and MTD for Income Tax
From April 2026, sole-trader consultants above £50,000 fall into MTD.
Sole trader consultants, freelancers, and agencies with qualifying income above the current MTD threshold now fall into Making Tax Digital for Income Tax. The threshold is being phased down over time. We get sole traders on Xero before their first quarterly deadline.
What can a UK consultant, freelancer or agency claim as an allowable expense?
The "wholly and exclusively" rule applies for self-employed and limited company expenses. The most claimed:
Technology and software:
- Laptops, monitors, keyboards, peripherals (under Annual Investment Allowance, up to £1,000,000 per year)
- Mobile phones and contract costs (business proportion or full business-use)
- Software subscriptions (CRM, design tools, project management, accounting)
- Cloud storage, video conferencing, password managers
- Web hosting, domain registration, email services
Office and workspace:
- Co-working space membership
- Office rent and rates
- Utilities for dedicated office space
- Use of home as office (HMRC simplified rate £10–£26 per month, or actual business-use proportion of utilities, council tax and rent)
- Office equipment (desks, chairs, lighting)
Travel and subsistence:
- HMRC mileage at 45p per mile (first 10,000 business miles), 25p thereafter
- Public transport for genuine business journeys
- Accommodation when working away from base
- Subsistence when working away from base (not at a regular client site for more than 24 months)
- Conference and event attendance
Professional fees and development:
- Professional body memberships (CIM, CIPD, CMI, IoD, RIBA, ICAEW where relevant)
- Indemnity and professional liability insurance
- Public liability and business insurance
- Course fees, conferences, CPD
- Books, journals, online learning subscriptions
- Coaching and mentoring relating to the business
Marketing and growth:
- Paid advertising (LinkedIn, Google, X, Meta)
- Website development and SEO
- Content production and creative tools
- LinkedIn Premium / Sales Navigator
- Branded merchandise and business cards
- Networking events and trade memberships
Staff and contractor costs (for agencies and consultancies with team):
- Salaries, employer NIC, employer pension contributions
- Contractor and freelancer fees (mind IR35 — see above)
- Recruitment fees
- Training and development for staff
- Wellness and team event costs (within HMRC limits)
Admin and compliance:
- Accountancy and bookkeeping fees
- Legal fees for business matters
- Bank charges and merchant fees
- FX costs on overseas payments
- Annual confirmation statement and Companies House filing fees
Not allowable: client entertaining (taking clients out for food or drink), home-to-base commuting, the personal-use portion of any dual-use item, and ordinary clothing.
Who we work with
NDCA agency, consultant and freelancer clients fall into a few groups:
- Marketing agencies, PR firms, content studios and creative agencies
- Management consultants and strategy consultants
- Recruitment agencies and executive search firms
- IT contractors and software development consultancies
- Freelance designers, writers, photographers and videographers
- Legal consultants, HR consultants and finance consultants
- Coaches, trainers and facilitators
- One-person limited companies (PSCs) contracting through clients
- Boutique consultancies with one to twenty staff
- Solo freelancers building toward employing their first hire
If your situation is not on the list, send us a message — it almost certainly fits.
How NDCA works
Three things make our service different for agencies, consultants and freelancers specifically.
- Fixed monthly fee
You pay one price every month for everything we agreed at the start — bookkeeping, payroll, VAT, salary/dividend planning, year-end, IR35 documentation review. No clock-watching, no surprise invoices when an extra contract goes live. - A real human, fast
ou get a named accountant who understands the platforms you sell on, not a ticket queue. Most questions get a reply within one working day. - Built around how independent work actually pays
Consulting and freelance income arrives in bursts. Big project invoices, monthly retainers landing on different days, agency commissions paid 30-60 days after placement. We track the mix, smooth cash flow forecasting against it, and manage tax provisioning so corporation tax and self assessment don’t catch you out.
Xero is the only platform we use
Xero is the only bookkeeping platform we run. For agencies, consultants and freelancers, that matters. For agencies and consultants, that matters.
Multi-currency revenue from international clients reconciles correctly with FX gains and losses tracked. Retainer income recognises against the service period through structured invoices and deferred income journals. Project work tracks against milestones. Payment platforms (Stripe, GoCardless, Wise) feed structured journals into Xero. Director's loan accounts track separately from drawings. The VAT return calculates automatically and submits direct to HMRC under MTD.
If you are not yet on Xero, we migrate you across as part of onboarding. If you are already there, we plug straight in.
Apron for invoice capture
Agencies and consulting businesses spend on dozens of small suppliers and SaaS subscriptions. LinkedIn Premium, software subscriptions, conference tickets, co-working memberships, freelancer invoices, travel costs, networking events — most of it on a business credit card.
We use Apron to capture all of it. Forward an invoice to your dedicated Apron email address, or snap a photo of a receipt, and the supplier, date, amount, VAT and line items are pulled out automatically and pushed into Xero — coded correctly and matched to the card transaction. By the time year-end arrives, every allowable expense is captured and your tax position reflects the real cost base.
Worked out your salary, dividends and IR35 position for 2026/27?
Dividend rates went up in April 2026. IR35 thresholds shifted. The optimal mix is different now. Send us your situation — we'll come back within one working day with a fixed monthly quote.
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Discover why businesses trust us for dependable accounting services and practical financial advice.
Switching from another accountant
If you already have an accountant and the salary/dividend split is unchanged from three years ago, or they have not adapted to the April 2026 rate changes, switching is simpler than people think. We send your current accountant a professional clearance letter, collect your records, and pick up where they left off. Most consulting clients are fully on-boarded within two weeks.
You do not need to wait for year-end. You do not need an awkward phone call. We handle it.
Agency, consultant and freelancer accounting FAQs
From 6 April 2026, the basic rate of dividend tax rose from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%, and the additional rate stays at 39.35%. The dividend allowance is £500 and the personal allowance is £12,570 (frozen until April 2031). For most director-shareholders, the rate change costs between £20 and £30 of extra tax per £1,000 of dividends taken.
IR35 (the off-payroll working rules) determines whether a contractor working through a limited company is genuinely self-employed for tax purposes, or a "disguised employee". It applies to anyone supplying their services through a personal service company (PSC). Where the end client is medium or large, they determine your status. Where the end client is small (under £15m turnover, £7.5m balance sheet, 50 employees), you determine your own status.
IR35 (the off-payroll working rules) determines whether a contractor working through a limited company is genuinely self-employed for tax purposes, or a "disguised employee". It applies to anyone supplying their services through a personal service company (PSC). Where the end client is medium or large, they determine your status. Where the end client is small (under £15m turnover, £7.5m balance sheet, 50 employees), you determine your own status.
From 6 April 2025, the small company thresholds for off-payroll working increased. A client is now "small" if it meets two of three tests: turnover up to £15m (up from £10.2m), balance sheet up to £7.5m (up from £5.1m), or fewer than 50 employees. Many more clients now fall in the "small" bracket, pushing the IR35 determination back onto the contractor.
From 6 April 2024, when HMRC determines that an engagement was wrongly classified as outside IR35, any tax already paid by the contractor or PSC (corporation tax, dividend tax, income tax) is offset against the PAYE bill the end client has to pay. Previously, the contractor paid the same tax twice — once through the PSC and again through PAYE — making clients risk-averse. The new offset reduces the overall cost of a wrong determination.
Most consultants earning over about £30,000-£50,000 of profit are better off as a limited company. Corporation tax (19%-25%) plus optimised salary/dividend extraction usually beats sole-trader income tax (up to 45%) plus Class 4 NIC. The April 2026 dividend rate increases narrow the gap slightly, but limited company structure remains the more tax-efficient route for most consultants at sensible profit levels.
For 2026/27, the typical optimised salary levels are £12,570 (using the full personal allowance), £9,100 (the secondary Class 1 NI threshold to preserve State Pension entitlement without triggering NI), or £5,000 (very small salary for sole directors not registered as employers). The right level depends on your wider income, Employment Allowance eligibility, and pension priorities. We model the alternatives.
Yes. Employer pension contributions made by your limited company are generally an allowable expense for corporation tax purposes and don't trigger income tax or National Insurance for you personally. With dividend tax rates rising, redirecting some profit into pension contributions is one of the most efficient ways to defer income — especially for directors near or above the higher rate band.
For B2B services to non-UK businesses, the place of supply is usually the customer's country and you don't charge UK VAT — they account for it under reverse charge in their own country. For B2C services within the EU, OSS may apply. For US clients, most professional services are outside UK VAT entirely. We confirm the position per service type and per client.
Laptops and equipment, software subscriptions, mobile phone (business proportion), home office (HMRC simplified rate or actual costs), travel and mileage for business journeys, accommodation when working away, professional body fees, indemnity insurance, training and CPD, marketing costs, networking memberships, accountancy fees, and the salary or fees of any team you employ. Client entertaining and ordinary clothing are not allowable.
Sole-trader consultants and freelancers with gross self-employment income over £50,000 fall into MTD for Income Tax from 6 April 2026. The threshold drops to £30,000 in 2027 and £20,000 in 2028. Limited company consultants are not affected — MTD for Income Tax applies to individuals only.
Xero, exclusively. We are a certified Xero Partner. We integrate Xero with payment platforms (Stripe, GoCardless, Wise, PayPal), multi-currency banking, and Apron for supplier invoice capture.
Yes. NDCA is regulated by the ACCA (Association of Chartered Certified Accountants).
We are remote first. We work with consultants, agencies and freelancers across the UK using Xero, so location does not matter.
Yes. Book one on 01903 968618 or via the contact form.
Ready to hand over the salary/dividend planning?
Most agency, consultancy and freelance clients hand over the company once a year and we handle everything — salary level, dividend timing, IR35 documentation, year-end. Send us a few details — we'll come back within one working day with a fixed monthly quote.
