Contractor Taxes – Helpful Tips for Your Options
‘HVAC Contractor in South padre island TX Tax’ is really a basic expression used to explain how contractors account and pay their taxes and National Insurance. There are lots of companies that make use of contractors with regard to specific tasks or to help with special projects. The implications for Contractor Tax are wide ranging and need to be considered carefully. The primary options for contractors are:-
A self employed service provider will pay ‘Contractor Tax’ in exactly the same way as a normal self employed person, for example a plumber. A record of the costs incurred, materials etc must be maintained as well as summarized on the annual tax return. Self employed person has to raise their very own invoices and send these to customers.
In addition the self employed individual will have to sign up for VAT if your turnover is more than $73,000 (2011/12). VAT is actually accounted for as well as paid to HMRC every 3 months, it is payable even if the bill has not been paid at the time the VAT return is posted.
The principal pitfall with this choice is that many companies will only use a specialist contractor doing work for a limited organization. HMRC uses tests to determine that the contractor is truly self employed and not a disguised worker of the client company which has serious ramifications on the amount of Contractor Taxes paid.
A company could be started fairly simply by buying one ‘off the shelf’. The organization will require its own bank account. Again if the turnover surpasses $73,000 (2011/12) there is the additional problem of collecting and paying over VAT.
Although this option may permit the contractor more freedom to run their company the way they want, the additional obligations make it essential for more detailed information to be stored and may include additional costs. Nevertheless the quantity of Contractor Tax paid can be reduced by using dividends instead of paying a high salary.
The primary consideration with regard to contractors is passing the tests to exhibit that the individual running the company is an independent contractor and not considered some sort of disguised employee of the client company. The failure of these tests will incur extra costs and potentially large penalties around the additional Contractor Tax expected. When there is a dispute with HMRC the costs of defending the independent contractor status can be high and cannot be restored.