In short: Working for only one client does not by itself make you an employee, but it can be a sign. What matters is your real employment status. Sole traders pay Income Tax and Class 4 National Insurance through Self Assessment. Contractors working through their own limited company may fall under the off-payroll (IR35) rules, which can mean being taxed much like an employee.
Start with your employment status
Many contractors work for a single company for months or years. HMRC does not look only at how many clients you have. It looks at the reality of the working relationship. Key questions include:
- Control: does the client decide how, when and where you work?
- Substitution: could you send someone else to do the work?
- Mutuality of obligation: must the client offer work, and must you accept it?
- Financial risk: do you invest your own money, fix mistakes at your own cost, or risk making a loss?
- Part and parcel: are you treated like staff, with a company email, line manager and benefits?
If the answers look like employment, you may be an employee for tax purposes, even if your contract says "self-employed". HMRC's free online tool, Check Employment Status for Tax (CEST), can help you test this, but it is a starting point and not a substitute for advice.
If you are a self-employed sole trader
You register for Self Assessment and pay tax on your profits (income minus allowable expenses).
For the 2026-27 tax year (6 April 2026 to 5 April 2027), Income Tax rates outside Scotland are:
- Personal Allowance: £12,570 at 0%
- Basic rate: £12,571 to £50,270 at 20%
- Higher rate: £50,271 to £125,140 at 40%
- Additional rate: over £125,140 at 45%
The Personal Allowance reduces by £1 for every £2 of income over £100,000. If you live in Scotland, Scottish Income Tax rates and bands apply instead, so check the Scottish rates on GOV.UK.
You also pay Class 4 National Insurance on profits: 6% between £12,570 and £50,270, and 2% above £50,270. Compulsory Class 2 contributions were abolished from April 2024.
Making Tax Digital
From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must use Making Tax Digital for Income Tax. This means keeping digital records and sending quarterly updates to HMRC through compatible software. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
If you work through your own limited company
Many contractors use a limited company (sometimes called a personal service company). The company pays Corporation Tax on its profits, and you take money out as salary and dividends.
For 2026-27:
- Corporation Tax is 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief in between.
- The first £500 of dividends is tax-free. Above that, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate).
The off-payroll working rules (IR35)
IR35 applies when a contractor works through their own company, but would be an employee if they were engaged directly. Who decides depends on the client:
- Public sector clients and medium or large private sector clients must decide your status and give you a Status Determination Statement. If you are "inside IR35", tax and National Insurance are deducted before you are paid, much like a salary.
- Small private sector clients do not decide. Your own company must assess your status and, if the rules apply, account for the extra tax.
From 6 April 2026, a private sector client is generally "small" if it meets two of these: turnover of £15 million or less, balance sheet total of £7.5 million or less, 50 or fewer employees.
Working for only one client for a long time can increase the risk of falling inside IR35, so it is worth reviewing your contracts and working practices.
Practical tips
- Keep a copy of every contract and any Status Determination Statement.
- Make sure your contract reflects how you actually work.
- Keep receipts for all business expenses.
- Put money aside for your tax bill throughout the year.
- Check your status again whenever a contract changes.
Because the right setup depends on your circumstances, speak to an accountant before choosing between sole trader and limited company.
How Form My Company can help
Contracting through a limited company? Our Digital Package forms it for £290, including the Companies House fee, VAT and Corporation Tax registration. Working as a sole trader? Our Self Assessment service (£120) prepares and files your tax return, and our accountants can explain Making Tax Digital in plain English.
Frequently asked questions
Am I an employee if I only work for one company?
Not automatically. HMRC looks at control, substitution, financial risk and how integrated you are in the business. Working for one client can be one sign of employment.
What is IR35?
IR35, or the off-payroll working rules, makes sure contractors who work like employees through their own company pay broadly similar tax and National Insurance to employees.
Who decides if I am inside IR35?
Public sector and medium or large private sector clients decide. If the client is small, your own company makes the decision.
What are the Class 4 National Insurance rates for 2026-27?
6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.