Taxes for IT contractors
Taxpaying is always the toughest and challenging task that is changing often. It is important to be aware of these changes if you are an IT contractor. Different types of taxes have to be paid by it contractor tax like value added tax, corporation tax, dividend tax, income tax, and umbrella company tax. The types can be discussed in detail later in this article. Before that, it is important to know about the important changes happened for IT contractors. The flat rate scheme can be done to reduce the VAT accounting. Similarly, public sector contractors are subjected to iR35 rules.
Types of taxes to be paid by IT contractors
Though there are different types of taxes to be paid by it contractors, there are simpler ways to take more money home. It can be done by negotiating the best contract rate and also by not paying unnecessary taxes. The most important it contractor tax to be paid are as follows
- Limited company tax: The limited company taxes are separate companies that the taxes have to be paid on behalf of the company and as an employer; you should also pay the tax from your income. The common types are as follows
- Value Added Tax: Most of the IT companies have been registered to pay the value added tax for every service and product. However, you can submit the VAT taxes paid to your litigators when it reaches above 85,000 Pounds by which IT contractors can get benefited.
- Corporation tax: The accountant of the company for which you are working will prepare this tax to be paid every year. A separate amount will be sent on your behalf to the corporation as the corporation tax. It is one of the most paid it contractor tax that must be paid within 9 months of the company’s fiscal year.
- Insurance: All staff has to pay this tax as employer’s National insurance to the government. The tax gets automatically deducted from your salary every month and reaches the government annually.
- Dividend tax: As an employer, you also form as the shareholder of the company by paying dividend tax. Different rates and types are available in this according to the company guidelines.
- Income tax: Through the self-assessment process every year, the tax return must be done every year in the month of January and in July.
- Umbrella company tax: Like the traditional employee, the employees working under the umbrella companies also have to pay it contractor tax. The whole income after allowances and deductions for pension contributions are subjected under PAYE which is called as Payee As You Earn. The employee of the umbrella company also has to pay the national insurance. The provider of the umbrella companies is responsible for the processing of payroll.
There are also other issues for it contractor tax that is to be paid without fail like intermediaries’ legislation commonly called as ir35 if caught by disguised employment. Hence the traditional and umbrella company employees will not be affected as they are paying their taxes by their employers without fail.