Every April, new tax rates, bands and allowances come into play. Here are the most relevant rates and tables for IT contractors for the 2014/15 tax year.
- This is a tax on the profits of limited companies. The small profits’ rate, which applies to firms with turnover of £300,000 or less is 20%.
- The main rate (paid by larger companies) is 21% on annual profits of £1.5m or more.
- A complex system of marginal relief is applied to profits which lie between these two thresholds.
- The personal allowance (upon which no tax is paid) is £10,000.
- However, if you earn between £100,000 and £120,000 during the 2014/15 tax year, your personal allowance will decrease by £1 for every £2 earned above £100,000.
- The basic rate band (20%) applies between £0 and £31,865.
- The higher rate band (40%) applies between £31,866 and £150,000.
- The additional rate band (45) applies to income over £150,000.
- You must register for VAT if your annual turnover reaches the £81,000 threshold, and the de-registration threshold is £79,000.
- The following rates apply to dividends drawn down during the 2014/15 tax year. You receive a 10% tax credit on all dividends, so the effective tax rate is shown after the main rate.
- Basic Rate (10% | 0% after tax credit) between £0 and £31,865.
- Higher Rate (32.5% | 25%) between £31,866 and £150,000.
- Additional Rate (37.5% | 30.55%) above £150,000.
- All contractors (limited and umbrella) pay Class 1 National Insurance Contributions on their salaried income. No NICs are payable on company dividends, however. The ‘self employed’ pay Class 2 and 4 NICs.
- The rates for the 2014/15 tax year are as follows:
- Employers’ NICs – 13.8% on earnings above £153 per week.
- Employees’ NICs – 12% on earnings between £153 and £805 per week, and 2% thereafter.
- A new ‘Employment Allowance’ applies, which will refund up to £2,000 of Employers’ NICs each year. Contractors are unlikely to benefit, as they tend to pay themselves low salaries which attract few or no NICs.
Other Tax Rates
- ISAs have been replaced by NISAs, which have an increased annual tax-free limit of £15,000.
- The Capital Gains Tax rates remain at 18% (basic) and 28% (higher tax band).
- Your Annual CGT tax-free limit is £11,000.
- The Inheritance Tax Threshold (IHT) remains at £325,000 for another year. Double for married couples / civil partners.
- The annual pensions tax-free limit falls from £50,000 to £40,000.
- The lifetime pension allowance has been cut from £1.5m to £1.25m.