About the Contractor Tax Calculator
Here you can find an outline and explanation of several of the components that make the contractor pay calculator.
The hourly rate is a necessary input for the calculation of the income as it is used to calculate the total salary you would earn in a single year.
Hours worked per week
The hours worked per week are also necessary for the calculation of your net take home income as they are multiplied by your hourly rate to calculate your weekly earnings.
Number of weeks worked per year
The number of weeks worked per year is necessary for the calculation of the income as well and this would be the weeks you expect to work in a year which typically is around 48 weeks which would be multiplied by your weekly earn to come up with your yearly earnings as a contractor.
Number of commuting miles
The number of commuting miles should be used if you have been contracting at the same place for less than 2 years. These miles can then be used as company expenses that the company theoretically pays to the employee which in most cases will be the same entity as you will most of the times be both a director and the owner of the company. These miles will be used as expenses in the calculation for tax efficiency purposes but will also be then added as income to the employee as those will not be your actual car costs.
The accountant cost is what you pay your accountant per year and can again be used as a company expense for tax relief purposes and the actual amount is also deducted from your income as that will be an actual expense so you will not have to worry about deducting it from your net home pay.
Company insurance cost
The company insurance cost was added to the calculator as in most cases you will be required by your contract to take a company insurance to cover you against liability for when your limited company is offering services the company that offered your the contract. This cost can be deducted from your company as a company expense and thus help in terms of tax.
Student loan repayment plan
The student loan plan will change the amount of money you take home as the 2 plans vary on repayment percentages and thresholds, you also have the option to choose that you don't have a student loan if you already paid your student loan back or don't have one altogether.
National insurance contribution
National insurance is calculated as a percentage of the salary you earn as an employee so since in most cases you will be the only employee of your own company you will be contributing national insurance only on the amount you have assigned to yourself as a salary and not dividends.
Since most of the times in order to be as efficient as possible and increase your take home pay you will be just paying yourself a salary which is equal to the salary allowance that falls under the 0% tax bracket which is £11,850.
National Insurance rates are as follows:
- 0% for the first £8,424 you earn yearly
- 12% between £8,425 and £46,350 for the amount you earn yearly
- 2% for any amount you earn above £46,350 yearly
The student loan is calculated depending on what repayment plan you are on which mainly depends on the year you started your course and where you are from, if you don't have a student loan then you can choose the 3rd option.
If you started your course before September 2012 or are a Scottish national or a Northern Irish national then you fall under student loan repayment plan 1, else if you started your course after 2012 the you fall under repayment plan 2.
If you wish to find out more details about student loan plans and repayment options then you can visit the Student loans page.
The tax that is calculated with tax calculator includes both the tax that you pay through your Limited company, the personal income tax as well as the dividend tax that you would need to pay for the dividends you would earn through your company as the only shareholder.
We try to make things as simple as possible when presenting you with the tax breakdown by only showing a single value for the tax but the important thing is that the value that you see will not affect your take home pay.
The most efficient way to plan and calculate your income as a contractor is to pay yourself as a director of your own company a salary of £11,850 which is the highest salary you can get paid yearly before you start getting taxed. So because of that you don't have to pay any tax for your employment as the director of your company and thus the tax you pay is the corporate tax for your company and then the dividends you earn as a shareholder.
So the tax you have to pay is as follows:
- 20% corporate tax on the company profits *
- 7.5% dividend tax on dividends above the dividend threshold up to £34,500 which for 2018 is £2000
- 32.5% dividend tax for dividends between £34,501 and £150,000
- 38.1% dividend tax for dividends above £150,000
* Company profits are the income you make as a contractor minus the company expenses and employee salaries including your salary as a director
If you wish to find out more details about dividents tax rates you can visit the Goverment website.