Contractor Tax Issues

Contractor Tax Issues

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Whether you’re an experienced contractor or freelancer or just starting out, there are some tax issues you need to consider. The rules for self-employed people in the UK are slightly different to the rules for people in regular employment. One of the differences is that, if you’re freelance, you need to know what kind of freelancer you are. Does your business mean that you need to register a company, or are you self-employed as a sole trader, meaning that you don’t need a company?

Depending on how much you earn, you may also need to register for Value Added Tax. This is something your accountant can help you with. It can help to separate the VAT out when sending invoices. If you’re on low to average earnings, then you won’t need to worry about registering for VAT, but if you earn over 64,000 a year then you will. This is so you can collect and claim for VAT and you’re obliged to register if you’re a high earner.

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Paying your National Insurance contributions is another thing you need to arrange if you’re a freelancer in the UK as it’s different for self-employed people. Most people will be expected to pay Class 2 NI contributions unless their earnings are very low, exempting them from the charge. It’s relatively easy to set up a direct debit with Her Majesty’s Revenue and Customs to pay for this. If you’re a high earner, you’re also required to pay a higher NI rate which you can volunteer to pay, too.

Self-assessment tax returns are one of the big issues for UK freelancers and contractors. These are based on the previous financial (which runs from April – April) and you will be charged tax based on how much you earned in that financial year. You need to make sure to keep a record of all your earnings and all costs related to your work so you can input them into the form and help HMRC come up with an accurate figure as to how much tax you owe.

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Finally, you need to consider how you are going to pay your tax bill. You should ideally put money aside throughout the year to make sure you can afford to pay the tax when you need to. You should also try and build up a cushion of money in case the subsequent tax year is a bad one and you don’t earn much, as you will still be expected to pay your bill for the previous year. It can sound a bit complicated, but planning well definitely helps.

More : Contractor Tax Or Contractor Umbrella Company

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