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A contractor is someone who provides services to a client (usually, a company).

In most cases, contractors are self-employed and need to file a Self Assessment tax return, but it’s not always the case.

I am a contractor – should I file a Self Assessment?

  • If you work for a client through an agency or umbrella company, you’re an employee of your agency and your taxes are sorted through PAYE
  • If you work for a client through your own limited company, you’re a company director and you can either pay yourself through salary, dividends, or both. If you pay yourself a salary, you should pay tax via PAYE. 
  • If you pay yourself via dividends, you’ll need to file a Self Assessment and pay dividend tax

How is the construction industry different?

In the construction industry, a contractor is usually a company that is hired (“contracted”) to complete a project. This company can then hire construction workers either as employees or as self-employed workers (“subcontractors”).

If you’re a subcontractor, your contractor takes 30% of your pay and gives it to the HMRC. This is different from PAYE. It’s a scheme called the Construction Industry Scheme (CIS) which is designed to reduce tax evasion.

If you register for CIS, you can reduce the deduction to 20% and claim some of your tax back in April of the following tax year. The average CIS rebate is £2,000. 

Check out our CIS tax rebate calculator to see how much you could get.

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