cis Taxing a sub contractor

[danny7299]

Hi all i could do with a bit of advice .

I have been working for a subcontractor , who pays me -20% for the CIS

i also have working for me a lad who is classed as self emplyed , so i take 20% out of his wages.

my question is , will the lad get taxed 20% form the subcontractor im working for , and then have to take 20% from him once i pay him.

wouldnt that mean i am paying 40% tax ?

a bit confuessed about it now ,

any information would be great.

Cheers

:Spam2

 

[Manator]

No your original price to the contractor is your total, cis will take 20% from that for tax.

You then require an invoice from your subcontractor, you have to contact the cis who will tell you what percentage of tax you need to deduct from them. All outgoing expences show up on your anual returns so you do not lose anything unless you have really underquoated a job.

 

[danny7299]

no mate , should make on the job as we where labour only , and charged day rate. but i was getting worried as when i talked to my accountant he was telling me i would have to tax it twice.

and as the lad is currntly on %30 untill he getts the paper work through from the HM rev, i thought i was going to be paying 50% tax on it, and as i have already paid the lad i thought i would be quids out!!

so basically it will sort its self out , once my accountant does my tax return?

 

[Manator]

Danny your only taxed once, and that is on your invoice. Anyone who works for you on a self employed basis is payed by you, in order to do this you need to have the subcontractor registered through th cis system, this is a simple process and can be done over the phone, if they have asked you to deduct at 30% you must have done this.

Remember that all returns have to be in on time or they will impose a

 

[NozSpark]

It seems like you are getting a bit mixed up with how you should invoice your CIS work.

You have taxable amounts i.e. YOUR labour

and non taxable amounts i.e. materials, what you charge for your PAYE employees/sub contractors and other things like that

then you will only be taxed on your earnings and you deduct the tax for your employees/sub contractors

Take the advice of an accountant though,,, if you end up paying too much CIS you will get it back when you do your tax return

 

[danny7299]

i think i understand you,...

so to put it in simple terms , i charged out the lad for

 

[NozSpark]

Put it this way.. (not that I'm an accountant)

When you invoice a CIS job you essentially invoice 2 things....

PROFIT (this includes your wages) and COSTS

The main contractor will then deduct tax from your profit and not your costs, if you put your lad down as a cost then you will not be taxed on him, but you will on the profit you make from him... you'll still have to deduct any tax you need to for his pay though.

Give the TAX helpline a ring I'm sure that they'll put you right!

 

[spinlondon]

You have to fill in a monthly contractors form (CIS300?).

On that form you must list how much the lad is getting before tax, and then how much you are deducting.

You will then have to ring the CIS helpline to arrange to offset the Tax as It's already been paid.

You may also have to contact the PAYE people to explain that the tax has been deducted at source.

You have to be carefull thoygh, if the main contractor has already taken 20%, and CIS are telling you to take 30% you will have to make up the difference.

 

[user 6351]

It sounds as though your accountant is a little confused here and getting you worried for no reason...

Essentially, you are fulfilling 2 roles in this case:

1) You are a subcontractor to the main contractor and are providing services to him;

2) You are yourself a contractor and are taking on the services of a subcontractor to work for you.

I'm assuming here that you already have everything in place with HMRC to work in both these capacties?

The main contractor will pay your invoice having deducted the relevant amount of tax according to your verification status.

You pay you subcontractor his wages according to the verification status that you were given for him.

...so the main contractor holds a portion and you hold a portion to pay tax - you get your full payment less the required amount and so does your subbie.

Both you and the main contractor submit CIS300 monthly returns showing the amounts of tax deducted and provide statements accordingly.

At the end of the year, you then submit your annual return including your CIS deductions and showing your payments to your subbie in the relevant column.

This should then resolve any differences...

There is loads of stuff on CIS on the HMRC website

 

[Evans Electric]

Danny, listen to your Uncle Deke. This is what I was told by HMRC .

There is a contract between you and the Main Contractor .

No contract between your mate and the Main Contractor .

So , your invoice to MC would be made up as:-

Your labour costs ( which will be subject to dedution @ 20% by MC.)

Materials & Expenses ( including your mate's labour)

When you pay your mate ,deduct 20% .

This is because you are both a contractor and a sub-contractor .

You don't want the MC stopping tax out of your mate's money because you have to stop it also.

And you MUST, MUST MUST get a statement of the MC showing CIS stoppages.

 

[Lee321]

mc will not pay the mates portion without deduction.

because it is a LABOUR element.

you will essentially pay 50% : 20% on 800 and then 30% on 543 ish

this is why you must get a gross payment certificate so no stoppages are made

but the over tax is all shorted out at the end when the books are done.

its not a problem if very occasional but if youve got 10 lads on full time (subbies) you can't possibly do it that way.

 

[Evans Electric]

Seems to work for me , has done for the last 11 years . I'll leave it with you , but how can the MC deduct tax and submit it to HMRC when he probably doesn't even know the name of the electrician's mate ?

You will only get a gross payment certificate if your turnover is over a certain limit.

 

[Lee321]

Seems to work for me , has done for the last 11 years . I'll leave it with you , but how can the MC deduct tax and submit it to HMRC when he probably doesn't even know the name of the electrician's mate ? the payment is to the sub-contractor. if you had 100 men working for you imagine the hassle for the MC if you had to give all there details. its not the done thing. if you have it deke its not common and is a bonus.You will only get a gross payment certificate if your turnover is over a certain limit correct .

as above

 

[Evans Electric]

Lee, if I had a 100 men working for me , the MC would have to verify them all himself if he intended deducting tax from them , so what would he be doing , paying them direct .

You can't just deduct tax from a 100 men that you have no record of , you have to declare that you have verified their self employed status for a start.

The method you propose is :-

You work out your own labour and the 100 men, submit it to the MC.

MC deducts 20% and gives you a cheque .

You take your own labour and your tax has been paid by MC.

You now have to pay your 100 men from taxed income and you are obliged under the CIS scheme to deduct 20% but its 20% of wages that have already had tax deducted .

So you are one of my merry 100 men , and you earn

 

[spinlondon]

In situations where Tax has already been deducted at source, it becomes a paper exercise.

Essentially you pretend that no tax was deducted at source, you then pretend you have deducted the Tax, and at a later date, offset this Tax against that, that was already deducted at source.

 

[Lee321]

i got lost in that long reply deke. but seriously its not industry standard what you propose :Salute

if you priced a job to say wilmot dixon for 10k labour only and you needed 5 other men to help you complete that job and do not hold a gross payment cert, wilmot will deducted 20% if registered with cis and would not take into account the 5 other men. you would then get

 

[Evans Electric]

Sorry to ramble on Lee , I just re-read it and got lost myself !!! However I raised this when CIS started in its present, ridiculous form and somewhere here I have a reply from IR on this subject.

I 've done numerous jobs for Main Contractors where Evans Electric (which is just me) is the electrical sub contractor, and employ two sparks and sometimes a chippy who works as a mate.

As I said before my invoice shows my wages only as taxable @ 20% then I make the deductions when I pay the guys , seems simple to me .

Just had a thought , a lot of jobs were for my customers who are printers , they ,not being subject to the CIS stoopid scheme ,pay me gross anyway.

If I can find this letter from IR I'll post it or PM it .

---------- AUTO MERGE Post added at 20:37 ---------- Previous post was at 20:22 ----------

[quote name='Lee

 

[Lee321]

Its an arse deke for sure. but the correct solution is get your gross payment cert. By default if your regularly using sub contractors your turn over will be much higher which is the main parameter for getting it. What you can do while you (get on your feet) is complete a deduction statement for your subbie as normal but your monthly return will not include the amount as you say has effectively already been stopped. We too explained this to IR and read us the riot act!

I guess it does have a grey area.

Further tho gross payment will make you more favorable to use as far as MC's are concerned as it is less hassle for them to pay you so its really good to get it.

 

[Evans Electric]

Its the maddest tax system ever !! I expect them to be fining me