Income Tax on Earned Income

As a Contractor you need to pay Income Tax on (1) PAYE earnings received via an Umbrella Company, OR (2) on Salary and Dividends received via your own Contractor Limited Company.

If you are a professional Contractor and you are interested in either working with an Umbrella Company or setting up your own Contractor Limited Company Commonwealth Contractors can help!

To find out more about Commonwealth Contractors solutions for professional Contractors call now on 0800 294 4388 or Submit your Details and we will get right back to you!

Earnings that attract Income Tax

You need to pay Income Tax on certain types of income, including;

  • Employment Earnings
  • Self Employment Earnings
  • Pension Income (State, Company & Personal Pensions)
  • Saving Income
  • Share Income (Dividend Income)
  • Rental Income
  • Trust Income

Income Tax is payable further to the Personal Allowance, Income Tax Rates and Bands detailed below.

The Personal Allowance & the Income Limit

Most people in the UK get a ‘Personal Allowance’ which is the amount of taxable income you are allowed to receive ‘tax free’ each year. The Personal Allowance reduces down by £1 for every £2 of income received above the £100,000 limit.

2013 / 2014

2014 / 2015

2015 / 2016

Personal Allowance

£9,205 £10,000 £10,600

Income Limited for Personal Allowance

£100,000 £100,000 £100,000

Income Tax Rates & Taxable Bands

Above the Personal Allowance an individual pays Income Tax further to the banding system detailed below.

2013 / 2014

2014 / 2015

2015 / 2016

Basic Rate (20%)

£0 – £32,245 £0 – £31,865 £0 – £31,785

Higher Rate (40%)

£32,246 – £150,000 £31,866 – £150,000 £31,786 – £150,000

Additional Rate 45%

Over £150,000 Over £150,000 Over £150,000

Paying Income Tax

Income Tax is either paid

  • At Source – If you receive PAYE earnings (e.g. contract earnings via an Umbrella Company) then the company will run a weekly / monthly payroll and deduct Income Tax and Class 1 National Insurance Contributions at source. Income Tax payments will be paid to the HM Revenue and Customs each month on your behalf and at the end of the tax year you receive a P60 which confirms income received and tax paid.
  • Further to an end of year Tax Return – If you receive self employment income (including Dividend Income) you may have to pay Income Tax at the end of the tax year and further to a Self Assessment Tax Return

Find out More

To find out more about Commonwealth Contractors call now on 0800 294 4388 or Submit your Details and we will get right back to you!

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