Accounting and Taxation for Contractors

The Tax Liability of a contractor selling their services through a limited company falls into three areas:

  • Corporation Tax;
  • Tax Payable On Dividends; And
  • PAYE/National Insurance.

Corporation Tax

The most important tax liability that applies to limited companies is Corporation Tax. This is a levy on your company’s profits, that is to say the money that is left over once your business expenses, including your salary, have been deducted from your turnover. Trading profits, profits from investments and capital gains are all subject to Corporation Tax.

Corporation Tax is calculated and paid annually based on what is called your ‘Corporation Tax accounting period’, which is usually the same as your company’s financial year. HMRC will notify you of your Corporation Tax accounting period, along with the relevant submission and settlement deadlines, once they have received form CT41G. An important point to remember is that unlike most taxes, the deadline to pay your Corporation Tax bill is earlier than the deadline for submission of the associated Company Tax Return – assuming your turnover is less than £1,500,000, you have twelve months from the end of your accounting period to file your return, but only nine months to pay any tax due.

Rates for Corporation Tax

The current rates of Corporation Tax are

 

Rate

2015

2014

2013

2012

Small profits rate (companies with profits under £300,000)

20%

20%

20%

20%

Main rate (companies with profits over £300,000)

2-%

21%

23%

24%

Main rate (all profits except ring fence profits)

20%

 

 

Marginal Relief lower limit

£300,000

£300,000

£300,000

Marginal Relief upper limit

£1,500,000

£1,500,000

£1,500,000

Standard fraction

1/400

3/400

1/100

Special rate for unit trusts and open-endedinvestment companies

20%

20%

20%

20%

 

The opportunity to manage your tax liability is one of the most important motivators for a contractor choosing to operate via limited company.

In most cases, of course, a contractor will not have to work out their own tax liability – this is one of the main reasons why you will need services of experts.

We at BNW Accountants & Tax Consultants are focused on providing you with the best and affordable services.  Expert advice is strongly recommended to discuss taxation with our specialized team and get their view on the best way to arrange and present the accounts for your limited company’s specific situation. We are based in Mitcham and Redhill and have clients across Europe, UK and in particularly London.

Remember – getting the balance right between the various types of income, and therefore the various types of tax, is central to maintaining your company’s profitability and achieving that goal of tax efficiency that sent you down the limited company route in the first place.

The above information has been summarized for our clients understanding and can only be used at a starting point, should you require detailed understanding or any further help please contact us through telephone, email or our contact form.

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