Clicky

2014-15 tax rates and allowances for contractors

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.

Corporation Tax

  • 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.

Income Tax

  • 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.

VAT

  • You must register for VAT if your annual turnover reaches the £81,000 threshold, and the de-registration threshold is £79,000.

Dividend Tax

  • 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.

National Insurance

  • 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  • ISAs have been replaced by NISAs, which have an increased annual tax-free limit of £15,000.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.

Last updated: 12th November 2016