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Understanding tax basics - a guide for contractors
Article Author: Brendan Beeken Posted on: May 20, 2016 (Full Author Bio in the box on the right side)
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Contractors are liable for a variety of business taxes, alongside the familiar individual taxes. For those who are new to contracting, this handy guide can help you to gain a better understanding of your tax requirements.
Corporation Tax
This applies to limited companies and, unlike others, is not a tax that you get billed for by the government. Instead you must calculate and register for the tax yourself. This tax applies to trading profits, investments, the selling of assets and, all profits made at home and overseas.
Income Tax
The main source of income tax for contractor will be the profits you make as a self-employed individual. Most people get a personal allowance of tax-free income, and you can find this out through the self-assessment tool on HMRC’s website.
National Insurance
These tax contributions are necessary to qualify for certain benefits, i.e. state pension. Contractors will be taxed for national insurance if you are making more than £5,965 annually.
IR35
Intermediaries legislation are tax and national insurance contributions legislations that may apply to you as a contractor. If you are not compliant with this, you can be hit heavily with financial penalties, which is why it is vital to have thorough paperwork, and stay on top of deadlines for tax admissions.
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