How do I make a UK salary? For most contractors (who are not self-employed), this question comes easily: the majority of contractors get their salary either directly from their clients (many of them work through recruitment agencies) or indirectly via their contractor’s payroll system. However, there are some who make their money from other indirect ways, such as via commission sales, or sales from their clients’ clients. In this article we’ll look at how contractors make their money in the UK:
National Insurance pay-out
First of all, there’s the National Insurance pay-out. As mentioned above, if you’re a contractor and you’re paying your subcontractors directly, then you should deduct the appropriate tax from their monthly pay-outs. These CIS tax payments, added to the regular National Insurance premium, contribute to your total tax liability for the current year. If you’re a bricklayer, for instance, and you’re employed by an estate-based construction company to perform work on a new building site, your first payment for the project will be from your contractor’s payroll system, and your second payment will be from your estate’s system. As each commission payment is made, your tax liability will grow until you complete one entire year of work without receiving a solitary payment from the estate system! So keep that in mind when working with estate-based payroll systems, as they may deduct commissions indirectly from your pay.
Liability for UK Tax
One way you can minimize your liability for UK tax is to make sure you keep detailed records of your payments, both direct and indirect. You should keep all documentation relating to your current and past salary payments, all commissions earned all expenses and all subcontractor payments. The more documentation you have available to you, the better prepared you’ll be to present your tax return to the UK tax authority. When it comes to contractors, many people don’t realize that they have a legal right to keep all records related to their current and past employment. Even if your contractor won’t allow you to keep copies of all documentation, you can get them online for free.
National Insurance Contributions
Another way to minimize your UK tax liability is to include in your income tax return the gross salary or hourly rate that your contractor’s employing party paid you. This includes all national insurance contributions made by your contractor, as well as all expenses incurred by your contractor while performing the work for you. If you have any miscellaneous deductions, such as those for charitable donations, there may be a good reason why your national insurance contributions were not deducted. Be sure to check with your accountant to determine whether you met the criteria for deductions.
A number of construction companies offer loans for various aspects of their projects. However, before applying for one of these loans, be sure to ask how the loans will be applied. Many loans are not subject to CIS tax withholdings, as long as the loan is repaid within the specified period of time. For example, if the construction work is due for completion in six months, and then repayment is suspended for one year, then the loan amount is not subject to UK tax withholding. Similarly, many loans that are eligible for tax reductions are fully repayable in one year; if repayment is deferred, then the loan amount is subject to regular income tax withholdings.
As a subcontractor, it is possible for you to be classified as an SIC in the construction industry scheme. You will be required to pay tax on all income derived from the contract with the contractor and subcontractor, including any income that was sourced through sub-contractor means. In most cases, a SIC cannot be treated as an independent contractor, so be careful not to double up and include your own income on your income tax return. If a SIC is a member of a company incorporated in the UK, then he or she may be entitled to tax relief, but this should only apply where the company has chosen not to use the contract of employment in order not to pay tax on the income derived.
There is also a self-employed individual element to the self-employed element of the construction industry in the UK. Self-employed individuals can also benefit from the ISA. This tax deduction can be significant, especially if the cost of borrowing or paying interest on the loan is above the standard deduction.
Self-Assessment Accounting Contractors
There is a limited choice for self-assessment accounting contractors. The limited choices are available under the general principles of accounting, including the basic accounting principles, and the principles set out in ISA agreements. Under the principles of accounting, an accountant will consider the nature and extent of his or her services and the expenses associated with those services. He or she will also consider the extent to which the provision of his or her services will give rise to a gain (whether actual or potential), and take into account the extent to which reliance was placed on the services of another person that was not a client of the contractor.