What taxes will I pay as a contractor?21st February 2018 | Posted in: Allowances, Business Tax, PAYE & NI, Personal Tax, Planning, VAT
If you are new to contracting, or returning after a break, here is a summary of the main taxes you can expect to pay;
If you operate through a Limited company corporation tax will be due on the company’s profits. The current rate of corporation tax is 19% and payment is due to HM Revenue & Customs 9 months and 1 day after the accounting period ends.
National Insurance & PAYE
You may take a salary through your limited company. If so you will pay tax and national insurance, unless the gross salary is under the national insurance threshold. This payment to HMRC may fall monthly, quarterly or annually, depending on your circumstances.
Generally, if your company is generating revenue of £85,000 or more you are required to register for VAT. VAT Returns are commonly prepared and paid quarterly but can also be monthly and annually.
If your revenue is over a certain level there may still be a small saving by registering under the flat rate vat scheme.
Every company director is required to prepare a personal tax return. This reports all taxable income received in a tax year, which runs from 6 April to 5 April. This will include your salary, any benefits and dividends from your limited company, along with any other taxable income you may have.
If you take dividends from your limited company the first £5,000 are tax free. Any further dividends taken within the basic rate band are taxed at 7.5%. Those in the higher rate band are taxed at 32.5%. Dividends are reported in the personal tax returns of directors and shareholders.
From 6 April 2018, the tax free dividend allowance is reducing from £5,000 to £2,000.
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