Carrying out a roll subcontractor can be challenging in terms of sourcing work, the last thing you need is to be worrying about the level of tax you are paying. It’s an added layer to your work so payroll solutions when you’re self-employed are extremely important especially when it comes to your taxes.
We are all legally obligated to pay tax so figuring out whether you’re paying the right tax can be complicated, but it doesn’t need to be. Let’s first examine the implications of not paying taxes as a self-employed contractor.
What Happens If Contractors Don’t Pay Taxes
Failure to pay your tax bill can result in multiple fines, alongside the possibility of imprisonment. Whilst that sounds scary, you don’t need to worry too much about this, however, as fines and imprisonment are not the first response of HMRC. If you fail to pay your taxes, the HMRC will take several measures before any serious reaction.
These typically focus on agreeing with you to pay off the taxes you owe. The HMRC will either make this agreement with you or force you to pay it back by adjusting your PAYE tax codes. Future tax refunds can also be at risk.
Debt enforcement is also a possibility if you fail to engage with the HMRC. Typically, that involves the removal of some of your possessions so they can be sold to pay off what you owe. They can also take the sum directly from your bank account.
What Taxes Do Contractors Pay?
The taxes that a contractor pays depends on how they are paid. You can typically expect to be paid through a private limited company or an umbrella company, which means you’ll need to keep more than a few taxes in mind, including:
- Corporation Tax
- Dividend Tax
- Income Tax
- National Insurance Contributions
- Value Added Tax
If you’re a Pay As You Earn contractor, you’ll need to pay:
- Income Tax
- National Insurance Contributions
- Apprenticeship Levy
- Pension Contributions
- Holiday Pay
Alongside this, contractors in both situations will have to make any student debt repayments they may have. There are some exemptions when you’re paying your taxes, such as the first £1,000 of your trading not being taxable.
Tax Deductions You Should Expect To See
While you’ll need to pay quite a few taxes as a contractor, there are also more than a few tax deductions you can make. It’s worth taking advantage of these as much as possible, with some of the more notable including:
- Private pension contributions
- Charitable donations
- Maintenance payments
- Business expenses
- Work-related travel expenses
Figuring out your taxes as a contractor can be difficult for anybody. It doesn’t need to be overwhelming, however. With some payroll solutions and support from Pebble Contracting, it’s much easier than you’d think.
As not paying your taxes, or paying the wrong amount, can get you into trouble, there shouldn’t be anything stopping you from making sure it’s done right. Get in touch today.
