The type of tax you pay as a business depends completely on the structure of your business. If you freelance as a Sole Trader then you will pay Income Tax, if you contract through your own Limited Company then you will be liable for Corporation Tax. We have included details for both below so you can see the comparison between freelancing as a Sole Trader or through your own Limited Company.
If you freelance as a Sole Trader then you will need to prepare accounts each year for your business. These will show the amount of money coming in and the expenses going out with a final profit figure for the year. This figure is then turned into your Taxable Profit by adding back the expenses that are not tax deductible and taking off any capital allowances (tax reliefs due to buying large assets).
Now you have your Taxable Profit you will be liable for tax at the appropriate rates of personal tax, currently 20% for the Basic rate, 40% for the Higher rate and 45% for the Additional rate.
Addition to this you will need to pay Self-Employed National Insurance Contributions.
If you freelance through your own Limited Company then you will need to pay Corporation Tax on the Taxable Profits of the business. The current small business rate of corporation tax is 19%.
Which ever structure is best for you, The 123 Way includes the working out of your businesses Taxable Profit and the preparation and submission of your tax return and all supporting computations.
This information is for general information only. We take no responsibility for any action taken or refrained from in consequence of its contents. Always seek our professional advice specific to your circumstances before acting.