If you earn your money on a self employed basis, and contract your time to a company rather than being hired directly by them, then your tax status is wholly distinct from the circumstances of someone who is a direct employee of the same company. When working immediately for a firm, the employer subtracts your tax obligation from your salary before you are given it, through the PAYE (pay as you earn) tax system. When employed as a self-employed person, however, you are , according to the paperwork, self employed, and are therefore in charge of doing the sums on and announcing your specific contractor tax obligation .

contractor tax umbrella company is payable on a yearly basis , according to a tax return filled in before a deadline of January 31st for the fiscal year ending the previous April . After you have submitted your calculation and gained a statement of your contractor tax payment, you submit your complete tax bill in one go. This is one of the many differences between employed tax and contractor tax: with contractor tax you must put away a sufficient proportion of your wage to meet your contractor tax liability at the close of the financial year, when working as an employee ; your tax is removed at source without your input each month.

Many of those who would in different circumstances need to pay contractor tax choose instead to work as part of an umbrella company, which contracts them directly in order to take away the need for contractor tax, and charges their contracted employee for their labour. In this fashion the umbrella company functions as a middle man and in the process does away with the hassle of paying contractor tax, even sometimes reducing the total amount of tax that the person is liable for.

As well as writing down what he or she believes to be an appropriate proportion of their tax liability every four weeks or so , someone who pays contractor tax will also have to ensure that their national insurance contributions are up to date - these need to be paid on time in order that the contractor tax payer remains on course to receive the state pension when he or she reaches retirement age.

So as to get a rough understanding of your probable contractor tax bill at the end of the financial period, you might decide to make use of a contractor tax calculator. Contractor tax calculators are online tools that can be used to calculate an approximation of what your contractor tax could be. Users enter all the variables they have about their ongoing fiscal period, such as their wage and the hours they are fulfilling, as well as any extra types of income, and the calculator then tells them what their contractor tax might be at the following January.