Do contractors need to submit Self Assessment tax returns?
The simple answer to this would be YES! Just like all other businesses, contractors also have to pay taxes depending on the type of structure they have for their business.
Generally speaking, you need to make self-assessment tax return submission if you are working as sole trader, partnership or you are the director of a limited company.
Contractors working as Sole traders:
If you are a contractor and you are working as sole trader, you need to report to HMRC about your income and expenses so you would be submitting your tax return as a sole trader.
Contractors in Partnership:
In case you are working in partnership you need to submit a self-assessment tax return to tell HMRC about your income related to you in a partnership. (SA100). You will also be filling up the partnership supplementary pages (SA10).
The nominated partner must also complete a Partnership Return (SA800) – showing each partner’s share of the profits or losses.
Contractors in Limited Company:
In case contractors are the director of the company and taking income as a director such as dividends they need to report it to HMRC and submit their self assessment tax return.
What information do l I need to provide to HMRC as a contractor?
A Self-Assessment tax return usually deals with everything that happened during a tax year, which runs from 6th April until 5th April the following year.
You’ll need to declare all of the income you received during the tax year, regardless of its source so that HMRC can see:
- How much you earned.
- How you earned it
- What allowable expenses you can claim tax relief on
- Any tax that you have already paid.
When do contractors pay Self-Assessment?
If you have submitted the ta return for the tax year which starts from 6 April 2022 and ends by the 5 April 2023of the following year, the deadline to pay the amount due is 31 January 2024.
Do CIS tax returns affect my Self Assessment as a contractor?
Contractors in the building industry keep a certain percentage of what a subcontractor earns and report it to HMRC using monthly CIS return and this is done under the Construction Industry Scheme (CIS).
It has more impact on the sub-contractor in comparison to contractor because it turns out to be some extra admin for contractor but for sub-contractor CIS deductions are worked out without taking into account the personal allowance.
What about IR35 – How does that affect my Self Assessment being a contractor?
IR35 sets out to close loophole for contractors who operate through their own limited company when really, they’re an employee in all.
The client will deduct income tax and National Insurance from your invoice before they pay you – just like they would if you actually were an employee. It’s down to the client to pay this on to HMRC for you.
The payment you receive from the client is ‘after tax’, so you’ve already paid tax on that particular chunk. It’s important to make that clear on your Self Assessment, otherwise you might end up paying tax on it again!
Can contractors claim tax relief through Self Assessment?
In short, yes. Any business can include any allowable expense in the tax return.
Just to give you an example, a contractor working in the construction industry could claim tax relief on allowable expenses such as:
- Materials for work
- Essential equipment and tools
- General costs of running the business, such as marketing and stationery
- Travel costs relating to work
- Accountancy fees
If you are looking for an accountant to help you with your queries related to your business accounts, Call at 020 35765107 or send a message to book a free consultation.
Note: It must be noted that the information provided in all our blogs are solely for the awareness purposes and are designed with the intention to create an ease for the reader to understand the rules and their importance. However, it should never be considered as an ultimate replication of rules. RezEx Accountants (RezEx Ltd) does not own any responsibility for any unpleasant event that may arise due to misinterpretation of a specific part or whole of the information.
