3-Day-Week Playbook for Aussie Contractors

Introduction

If you’ve ever wondered whether a man can be both the face of a whisky campaign and the kind of guy who tracks his dividend income to ensure it stays just below the higher-rate tax threshold, then we would like to introduce you to our fictional Aussie in today’s blog.

He’s spent the last few years straddling two worlds: weekday shoots in Notting Hill, weekend invoices in Joy Pilot. One moment he’s in a roll-neck on a rooftop terrace with moody lighting, the next he’s updating his expenses, and tracking his personal income tax for the year while muttering about the VAT deregistration threshold over a flat white.

But now, he’s ready to slow things down.

Three days of work a week. The rest? Maybe hiking the Dolomites, maybe learning to make pasta from someone’s Nonna, maybe just catching up on all those joyfully tax-deductible subscriptions he forgot to cancel.

So how do you go part-time without accidentally mothballing your limited company or falling foul of HMRC? Can you keep the lifestyle, keep the company, and keep it all above board?

Today we look at a contractor who has been giving 100% for the last 30 years and wants to wind things back in a bit to free up some time for activity holidays while his knees are still good.

Why Throttle Back?

After three decades of giving it his all, our international man of mystery and Australian contractor isn’t unique in wanting to ease off the accelerator. The reasons for downshifting are often a blend of the aspirational and the practical. There comes a time when swapping the 9 to 5 for a 9am Aperol spritz starts sounding much more appealing.; think swapping runway shoots for scenic trails or finally taking that immersive pasta-making course in Italy. It’s not just about escaping the grind, but about actively chasing new experiences.

Then there’s the undeniable pull of looking after yourself. Maintaining good mental health becomes paramount, and the idea of keeping the body somewhat beach-ready (or at least ski-slope-ready for those Val d’Isère trips) well into your fifties and beyond often requires a more conscious allocation of time. It’s no secret that the demanding nature of contracting can take its toll.

Ultimately, it’s about enjoying the well-earned fruits of years of hard labour. There comes a point when the desire to savour life – to hit those ski slopes while the knees are still compliant or explore far-flung corners of the world – shifts from a “someday” dream to a “why not now?” plan. And there is always the classic “at some point I plan on completing an ironman” whose time feels like its close. It’s about reclaiming time and energy before the body starts lodging more serious complaints.

Transition to a 3-Day Working Week

Making the leap to a three-day week is more than just updating your calendar; it requires some smart adjustments to keep your contracting life smooth and compliant. For any freelancer looking to embrace this new rhythm, like our Aussie mate eyeing up those Dolomites, a few key areas need attention.

First, clearly define your ‘office days’ and communicate them. Letting clients know precisely which days you’re available, and agreeing on realistic turnaround times for deliverables becomes much more important. This isn’t just about managing expectations; it’s about protecting your newfound work-life balance and firmly shutting the door on those scope-creep jobs that mysteriously “need” to get done right away.

Next, a financial reality check is in order. With potentially 40 per cent fewer billable days, it’s time for a budget refresh. Re-forecast your expected dividend income, adjust pension contributions if necessary, and get a clear picture of your tax liabilities on the reduced earnings. It’s also wise to build or bolster a cash-flow buffer – a reserve account you can draw from if work dips or those overseas trips extend a little longer than planned.

Also remember that cutting your hours doesn’t grant you a pass on IR35. The legislation remains firmly in place, and the quick-fire tests of control, substitution, and mutuality of obligation are as relevant as ever. Ensure your contracts and, just as importantly, your working practices continue to clearly demonstrate that you’re “in business on your own account,” not just a part-time employee.

Do I Still Need a Limited Co at 3 Days a Week?

With the prospect of significantly fewer billable days, it’s natural to wonder if maintaining your limited company is still the best approach. There is a bit of admin involved, and running as a sole trader is so much easier. Let’s bust a few myths.

A. False-Economy Myth-Busting

The idea of closing your limited company to simplify things might seem appealing, but it can be a false economy. First, there are the closing costs themselves: you’re looking at expenses for completing the entire closedown process, even potentially an unwelcome exit tax bill if there is retained earnings to be paid out.

Beyond the immediate costs, you’d be waving goodbye to some significant advantages. The tax-efficient dividend route for extracting profits? Gone. The flexibility to make substantial employer pension contributions directly from company coffers? Lost. And for some clients, a limited company still carries a certain professional weight and brand credibility that can be harder to replicate as a sole trader.

Plus, consider the “what if” scenario. If those three-day weeks suddenly look like they could expand, or a fantastic full-time project lands in your lap, the hassle and expense of re-opening a company (or setting up a new one) can be a real pain. Sometimes, keeping the structure ticking over is the smarter long-term play.

B. VAT Deregistration: Pros & Cons

One area where scaling back might offer simplification is VAT. If your taxable turnover is expected to stay below the deregistration threshold (currently £88,000) then you can apply to deregister.

The pros are attractive: simpler invoices without VAT, an end to Making Tax Digital (MTD) for VAT filings, and easier record-keeping for your expenses as you no longer need to separate out the VAT element on every receipt.

However, there are cons. The most significant is that you can no longer reclaim VAT on your business purchases. For our contractor, if he’s investing in new camera gear, lighting, or a branded ski jacket for those product launches he attends, losing the ability to reclaim VAT could be a noticeable hit to the wallet.

Our Tip: Before you hit that deregister button with HMRC, run a “what-if” cash-flow table. Compare the VAT you would lose on your purchases based on your VAT returns for the past 12 months (and include any significant purchases you plan to make in the next 12 months). It’ll help you make an informed decision whether the drop in administration is worth the loss in VAT.

Salary vs Dividend on Lighter Profits

With billable days potentially down by 40%, the way you extract money from your limited company may need a rethink. For years, our Aussie contractor, like many PSC contractors, probably aimed for a low salary topped up with dividends, carefully navigating those higher-rate tax bands. But with profits likely to be a bit lighter, the “optimal blend” might shift.

If your total income (salary plus dividends) is now comfortably sitting below the higher-rate tax threshold, you have more flexibility. While dividends generally remain the most tax-efficient way to draw profits beyond a small salary, the precise numbers matter. It’s worth recalculating what makes sense for your new earnings level.

One important element not to overlook is your National Insurance record. To ensure you’re still accumulating qualifying years towards your State Pension, it’s generally advisable to maintain a small salary at least equivalent to the Lower Earnings Limit (LEL). This way, you get the NI credit without actually paying any NI contributions.

Keeping the Company “Active”

Even if your company’s income takes a dip as you embrace the three-day week, don’t fall for the dormant-company ruse (a dormant company only files simplified annual accounts to Companies House, and does not need to complete any Corporation Tax filings with the HMRC). As long as money is flowing through the company bank account (even if it’s just to pay a small salary or those ongoing accountancy fees), your company is not dormant. It’s still very much active in the eyes of Companies House and HMRC.

This means you’re still on the hook for your usual filing obligations. You’ll need to file micro-entity accounts, a Company Tax Return (CT600), and an annual confirmation statement. While the workload might be less than when you were flat out, these filings are still absolutely required if you want to keep everything above board.

Beyond statutory filings, it’s also important to keep your business bank account open and your professional insurances (like Professional Indemnity) current. Think of your active company as a ready-made runway for any future ventures. Our contractor might decide his dulcet Aussie tones are perfect for voice-over work, or perhaps those Chamonix summer trail hikes inspire an influencer gig. These side-hustles can often slot neatly into the existing PSC structure, making it easy to manage new income streams without starting from scratch.

Expense Claims That Still Fly

Just because our Aussie contractor is working fewer days doesn’t mean he can’t still claim legitimate business expenses through his limited company. So, what’s still on the table when you’re on a three-day week?

Travel to a temporary workplace remains a common claim. The key here is HMRC’s 24-month rule: generally, you can claim travel and subsistence for attending a workplace as long as you don’t expect to be there for more than 24 months, and you don’t spend more than 40% of your working time there. So, if his Battersea PowerStation shoots are for a specific project with a defined end, those travel costs should still be fine.

For a contractor who’s occasionally the face of a whisky campaign, the “wardrobe vs. costume” debate is pertinent. HMRC is clear: clothing that’s genuinely a uniform or a specific costume required for a role, and isn’t part of an “everyday wardrobe,” can be allowable. That moody linen single breasted blazer for the rooftop shoot? If it’s specifically for the campaign and not something he’d wear down to the pub, it could qualify, but lets face it, that is unlikely. The branded ski jacket for those product launches we mentioned earlier? If it’s purely for promotional duties, then he is on a stronger footing.

And what about tech that blurs the line between work and play? A GoPro, for instance. If our contractor primarily uses it to document behind-the-scenes footage of his projects for his professional website or social media, building his personal brand and attracting future work, then its cost can absolutely be a legitimate marketing expense. It’s all about demonstrating that “wholly and exclusively” link to the business.

Your 5-Step Action Plan for Going Part-Time

Ready to make the switch? Here’s your checklist before you swap those full-time contracts for more freedom:

1. Re-forecast Your Turnover: Project your income for the next 12 months on reduced hours. This will be helpful in deciding whether to deregister for VAT => if you anticipate dropping below the £88,000 turnover threshold, it could simplify your admin.
2. Review Salary & Dividend Strategy: With potentially lower profits, recalculate your optimal salary/dividend split. Use a reliable tool (like our No Worries Accounting take-home pay calculator!) to forecast your net income and plan for any dividend tax.
3. Check Your UK Tax Residency: If you’re planning more time overseas like our Aussie freelancer, be mindful of your UK tax residency status. Ensure you understand the rules to avoid inadvertently becoming tax resident elsewhere if you intend for the UK to remain your primary tax home.
4. Confirm Company’s Permanent Establishment: For your limited company to remain UK tax resident, its central management and control (its “permanent establishment”) must stay in the UK. Ensure your new working patterns don’t unintentionally shift this.
5. Book a Compliance Health-Check: Before you trade spreadsheets for sunsets, get a quick once-over. A chat with us at No Worries Accounting can provide peace of mind and ensure all your ducks are in a row.

Time to Trade the Catwalk for a Campervan?

So, there you have it. The dream of throttling back to a three-day week, swapping the hot pace of full-time contracting for more time to explore, recharge, or finally learn to make homemade pasta on the Amalfi Coast, is absolutely within reach. As our Aussie contractor has shown us, with a bit of planning, you can indeed scale back your contracting work while still enjoying the advantages a working through a limited company.

From understanding your IR35 position, to making smart decisions about your limited company status, VAT, and how you draw your income, going part-time successfully is all about making informed choices. It’s about keeping your company healthy and compliant, even when you’re only at the helm three days a week.

The good news? You don’t have to figure it all out alone. Get in touch with us at No Worries Accounting before you trade your Monday meetings for Malaga mojitos.