2018/19 tax rates and allowances for contractors

Here are the main tax rates and allowances for 2018/19 that are most relevant to contractors.

Corporation Tax

You have to pay 19% Corporation Tax if your profit falls below £300,000.
If your annual profit exceeds £300,000 then you have to also pay 19% Corporation Tax.

You have to register for VAT if your turnover over the past 12 months is £85,000 or more.
The de-registration threshold is £83,000.

Tax on dividends is paid at a rate set by HMRC on all dividend payments received.
Anyone with dividend income will receive £2,000 tax-free, no matter what non-dividend income they have.
Dividend basic rate is 7.5%. £0 to £34,500 on taxable income over the Personal Allowance In England.
The dividend higher rate is 32.5%. £33,501 to £150,000 on taxable income over the Personal Allowance In England
Dividend additional rate is 38.1%. Over £150,000 of taxable income.
Check out our dividend tax calculator for more information.

The personal allowance (the amount you can earn before any income becomes taxable) is £11,850.
If your income is higher than £100,000 this year, you lose £1 of this personal allowance for every £2 you earn above this threshold, until it reaches £0.
Therefore you will not receive a tax-free personal allowance at all if you earn £123,700 or more.

The basic rate band is 20% and applies to income up to £34,500.
The higher rate band is 40% and applies to income from £34,500 to £150,000.
The upper (additional) rate band is 45% and applies to income of £150,000 and above.

If you run a company (or work for one), then Class 1 NICs apply.
Employees’ Class 1 NICs are payable at 12% on salaries received between £162 and £892 per week. Any earning above the upper earning limit (£892) will be taxed at 2%.
Employers’ Class 1 NICs are payable at 13.8% on earnings above £162 per week.
For sole traders and partnerships, you pay Class 2 and Class 4 NICs.
Class 2 NICs are payable at £2.95 per week, and are paid by anyone earning £6,205 or more through self-employment during the tax year.
Class 4 NICs are paid on profits you make as a self employed person. The Class 4 NI rate is 9% of annual profits between £8,424 and £46,350, and an additional 2% on profits above £46,350 per year.
Read our guide on National Insurance for further information, or use our NI/Paye calculator.

If you pay higher rate income tax you’ll pay 28% on your gains from residential property, and 20% on your gains from other chargeable assets.
If you pay basic rate income tax you’ll pay 18% on your gains from residential property, and 20% on your gains from other chargeable assets.
You’ll pay 10% if you’re a sole trader or partnership and your gains qualify for Entrepreneurs’ Relief.
Each individual has an annual Capital Gains Tax exemption of £11,700.

The Annual Investment Allowance (AIA) is £200,000 and has remained at this since 01/01/2016.
First year allowances remain at 100%.

You will probably have to pay business rates if you use a building or part of a building for non-domestic purposes (e.g. an office)
You can estimate your business rates bill by finding the rateable value (RV) of your business and multiplying by the applicable multiplier below.
There are two multipliers: standard non-domestic rating multiplier is 49.3p for 2018/19 and small business non-domestic rating multiplier is 48.0p for 2018/19.
Businesses with a RV of less than £51,000 use the small business multiplier, if RV is £51,000 or more use the standard multiplier.