4% deduction from invoice?

[Evans Electric]

Tony,  it is a scheme introduced by a cash starved  government  who hate to think of the small , self employed working man  only paying his taxes at the end of the year , like everyone  else in business .

So , although you are self employed , they had you virtually  back on PAYE  if , and only IF , you did some work within the construction industry .

The stupid bit was ,....say .... a builder  takes some walls out of  an office at a printing works  and  contracts me to sort the electrics out .

When I invoice him he would have to deduct 20% tax  from the labour part of  said invoice.

If the printer used me to sort the electrics out I would invoice them with no deduction of tax  because they are  not deemed to be  a construction company. 

This  happened.  

 

[ProDave]

It is bonkers, but we don't make the rules.  As in this case I was a subcontractor working on a new extension so they take the tax off me.  I have wired 3 new build houses in the last year, but in all those cases working directly for the owner, so I am not a "sub contractor" to a building company so those are paid gross and declared on my tax return.

I wasn't expecting the CIS deduction from this job which is why I posed the question, truth is it's been so long since I did another CIS job I had completely forgotten about it.

I still think their book keeper has done the maths wrong as 20% of the invoiced labour cost would be more than they have deducted.  This job was for wiring an extension and rewiring a kitchen in the same house. I wonder if they only think the wiring of the extension comes under CIS so have only taxed part of the labour cost?

 

[Andy™]

or maybe he knows he has to deduct 20% but has done you a favour getting the amount wrong?

 

[Evans Electric]

I wonder if they only think the wiring of the extension comes under CIS so have only taxed part of the labour cost?

I doubt that Dave ...nobody checks the damn scheme ....hence blokes made up the  labour costs half the time.   

I had a big row with them once ,  ....the builder said he wanted ALL the labour costs shown ......... I said no , I  had two subbies on the job  , also myself, but I only ever put MY labour cost in to the builder ...because I  had to deduct  the 20% from  my subbies  meaning they paid twice .      He couldn't see it  at all ,  just kept saying  your labour cost is too low .      

Thing was ,  the only contract was between  Evans Electric  (Me)   and the builder........ so  how can  he deduct tax from two subbies  whose names he doesn't even know.    He can only deduct tax from me ....I deduct the tax from the subbies. 

 

[Risteard]

I had a big row with them once ,  ....the builder said he wanted ALL the labour costs shown ......... I said no , I  had two subbies on the job  , also myself, but I only ever put MY labour cost in to the builder ...because I  had to deduct  the 20% from  my subbies  meaning they paid twice .      He couldn't see it  at all ,  just kept saying  your labour cost is too low .      

Thing was ,  the only contract was between  Evans Electric  (Me)   and the builder........ so  how can  he deduct tax from two subbies  whose names he doesn't even know.    He can only deduct tax from me ....I deduct the tax from the subbies. 

Actually, the builder was correct. All labour should have been taxed at source and then you deduct from your subbies. The subbies don't pay twice - they invoice you for the full amount and you pay that minus the tax.

 

[Evans Electric]

Yes but In that case  how does HMRC know that the subbies have paid  tax on their earnings from me . ?     They were also  involved on other work , for me, nothing to do with that particular builder .......  how can he deduct tax from someone who isn't even working on his site ?  

In the self employed world ,  earnings are not normally taxed at source ,  mine were / are paid  yearly   until this scheme appeared which affected ONLY SE construction workers .   

The builder has to have my  UTR  number  and ,as you say ,  he has to deduct tax , at source , from MY  EARNINGS and notify me in writing   because  I am a sub-contractor to him     How can he  possibly deduct tax  from  these two unknown people who are helping me ?    

A typical week would be ,  the two subbies on the builder's  job with me for two days ...... then  pulling some cable in at a local factory for a day ...then wiring  to a new machine at a printers .     What has that to do with  some builder  on a job  10 miles away . ?    I ask.  

And why would I be  having to pay employees out of taxed income ...its just  crazy.             (I'm not shouting Risteard , just looks like it )   

 

[Andy™]

 until this scheme appeared which affected ONLY SE construction workers .  

nope. affect ltd companies too. if i do any work thats under CIS then any invoices i send would be deducted. but its far too much hassle so i generally avoid anything CIS and if i do price any jobs that are then i add enough to cover the 30% they will deduct

 

[Evans Electric]

Well Andy, Ltd or not  , you're still a self employed construction worker ...subject to the hare brained  CIS scheme  unless your turnover is equal to N G Bailey's .

Or unless you are working direct for a commercial company  that is not regarded as  " Construction"   or domestic . 

 

[Andy™]

but im not self employed, im PAYE employed, i just happen to own the company who employs me

 

[Risteard]

What you're forgetting Evans is that it's not you as an individual who is being taxed but you as a business/company. Therefore if others are working for you their part of the labour charge paid to you by your main contractor is still subject to CIS. Essentially you are acting both as a Subcontractor and a Contractor within the meaning of the CIS scheme. It would be illegal not to tax your subbies part of the labour payment at source in his payment to you. You can apply for Gross Payment Status though if eligible. 

 

[Evans Electric]

I can't agree Risteard  mate,    I'm a Sole Trader  as in  ...D. Evans  trading as Evans Electric ...its just me  .  

You are right when you say that I become a sub- contractor AND a contractor  ...and thats the very reason I deducted tax from the subbies and NOT the builder .

So to sum up :-  

Normally I pay MY tax  yearly .

Under CIS  a main contractor deducts MY own / personal/ D. Evans's tax @ 20%   at source .

Any subbies I employ I deduct their tax   .    The main contractor doesn't  because they are NOT working for  him , they are working for me .

 

[Mark2spark]

I agree with Evans, Risteard is wrong in my book. Who you 'employ' and under what tax rules is of no concern to the contractor that you are completing work for. Does he stop tax on the secretary's wages as well if that's the case?

As a company you give a price and, if agreed, that is the contract, between you and him. A straightforward 'master & servant' situation.

 

[Lurch]

There's several different levels of CIS. I think if you are just a subby you get a CIS4 card, but if you are the middle man (as per Evans Electric) then the company should have a CIS6 (or maybe 5) card which means you don't pay the subbies tax but you pass it up the chain to the main contractor.

I remember when it first started we had all this as I was just a subby and the bloke I worked for then invoiced the main contractor so he had to re-register and do it differently as he had subbies of his own.

 

[Risteard]

I agree with Evans, Risteard is wrong in my book. Who you 'employ' and under what tax rules is of no concern to the contractor that you are completing work for. Does he stop tax on the secretary's wages as well if that's the case?

As a company you give a price and, if agreed, that is the contract, between you and him. A straightforward 'master & servant' situation.

No, because you as an organisation (a sole trader is still defined as an organisation within HMRC) are selling the labour at whatever cost. It is irrelevant how many different workers are actually providing this labour which you are selling. Therefore the labour aspect of your invoice is taxed at source, and you will pay your subbies (who are selling their labour to you) net of tax.

As I said the way around this is to secure gross payment status.

 

[binky]

if you have sufficient turnover you can register for gross CIS, then builder just pays invoice as per normal. You would still have to sort out CIS for your subbies. Bit that irritates me is having to put in regular 'NIL' return when I haven't used any subbies.

 

[Murdoch]

AND HMRC wonder why cash deals are so popular in the building trade - its done to avoid tax and CIS.....

BUT grossly overpaid BBC presenters can be paid via Ltd companies ..................... madness

 

[Evans Electric]

No, because you as an organisation (a sole trader is still defined as an organisation within HMRC) are selling the labour at whatever cost. It is irrelevant how many different workers are actually providing this labour which you are selling. Therefore the labour aspect of your invoice is taxed at source, and you will pay your subbies (who are selling their labour to you) net of tax.

As I said the way around this is to secure gross payment status.

Risteard  , you can't get Gross Payment terms unless your turnover is above a particular level .    

We can argue till the cows come home ....thats how I used to work it .....  I don't now because I resigned from the scheme  and never , ever employ anyone  anymore,  how do you think my two subbies would get on if , at the end of the year , they put their own accounts into HMRC  and then say " You can't deduct tax from us because this unknown builder has deducted it  but we haven't got any proof in writing because we weren't actually working for him  & he doesn't know who we are anyway   but he deducted our tax  "  

They would just tax them again ,  I've seen it happen.  

The other thing is ,  under the scheme , I am not allowed to pay anyone  without making a deduction .   Unless its for small , occasional amounts below £1000 . 

 

[ProDave]

The other thing is ,  under the scheme , I am not allowed to pay anyone  without making a deduction .   Unless its for small , occasional amounts below £1000 . 

Mine was for an occasional amount under £1000 and they taxed me. I am going to sulk now.

 

[Andy™]

Risteard  , you can't get Gross Payment terms unless your turnover is above a particular level .   

yep, so basically the big rich companies get away with it yet the normal small contractors are stung with it. it also doesnt help that no-one, even HMRC, understand the system

 

[Evans Electric]

Someone  hasn't read the book then Dave .   If you work for them again  add 20%   and double your material content.