sole trader help

linzi1uk

Hi,
im looking for a bit of advice, my partner is self employed subcontractor and registered as a sole trader, he works in the construction industry and his contractor pays the tax, the thing is my partner also has people working for him, does he have to register as an employer as well, because when it comes to filling in the tax return it looks like he has earned all the money as all the invoices are in is name, jst a bit confused on this, any help appreciated
thank you

Pennywise

Yes, he needs to register as a contractor, deduct tax from his subbies, and submit a monthly CIS return and payment of tax to HMRC.

linzi1uk

the money my partner gets from the contactor has already been taxed at 20%, so he dosent tax the money he pays to his lads does he, if you understand me

chrismac1

This depends on their status. Normally these guys will be self-employed construction industry contractors, in which case there is CIS registration and 20% deduction. I advise my clients if at all possible to get the main contractor to pay everyone on the job - howls of anguish will now come from HMRC posters on this site!

The reason being that once you have registered as a CIS contractor, you have unwittingly signed up to deal with the most aggressive and unhelpful people working in HMRC today - and as regular viewers of my posts will know, from me that is really saying something! It is not unusual for the monthly submissions you've made to be deleted from the system, which then fines you £100 per month for each one because they are now late!

So if you are going to register as a contractor, DO NOT repeat NOT use the HMRC site to directly submit your returns. The reason for this is that once a return submitted in this way is deleted it is gone for ever. I use Able Internet software, there are many other good software programs for around £100 per year. I get a date and time stamp from HMRC with every submission, saved on the Able Internet server. These can never be denied by HMRC and once they realise you have not fallen into the trap of just using the HMRC site they simply take the fines off your account. One fine cleared quickly like this pays for the software.

linzi1uk

so if he gets paid £1268 a week after tax, and out of that he pays out £640 in wages does he have to pay 20% tax on that aswell his workers are all self employed, he is a sub contractor and a contractor at the same time

chrismac1

The 1,268 is after 20% tax so is gross income is 1,585. his contractor is legally obliged to issue him a statement which shows the 317 tax deduction - in April, guys like your partner are my first prioirity in the new tax year because they'll all be due tax refunds and this can be in their bank accounts in early May if they are well organised and get their records to me quickly. The £640 net is after tax of £160 and he is legally obliged to issue statements accordingly - amongst a great many other obligations, the main one being to pay over the tax by 19th of the month following the payment made to his sub-contractors. PM me for more details of the obligations. Every month of late submission or non-submission of a zero return is £100 fine and these can soon mount up to big numbers, often enhanced by HMRC simply deleting submissions from the database as already mentioned.

Pennywise

linzi1uk wrote: »

the money my partner gets from the contactor has already been taxed at 20%, so he dosent tax the money he pays to his lads does he, if you understand me

Two completely different things.

The tax deducted from money paid to him is his tax.

He then deducts tax from his subbies which is their tax and pays them the net amount.

The PAYE/CIS returns his personal self assessment tax return will balance out to what tax is actually due and if he's paid too much, he'll get a refund.

linzi1uk wrote: »

so if he gets paid £1268 a week after tax, and out of that he pays out £640 in wages does he have to pay 20% tax on that aswell his workers are all self employed, he is a sub contractor and a contractor at the same time

Yes, like I say, the tax deducted from pay to his workers is a completely different thing. It's not "his" cost, it's his workers' cost as he takes the tax off the amount he'd otherwise pay to them gross.

All, of course, his subbies are registered for 20% - he needs to check their status - for some he may have to deduct 30% and for others he may not have to deduct tax at all.

Sorry to say this, but he really should have sorted all this out before taking it upon himself to engage other workers - he could already been incurring penalties for late filing of returns due for past months, not to mention becomming liable for tax he should have deducted from his workers but didn't. Taking on workers, either employed or subbies, isn't something to take on lightly - the consequences for getting it wrong are very high. I'd suggest you take him along to an accountant pretty damn quickly to prevent things getting worse and to help him understand how the system works.

linzi1uk

thanks for your helpful replies, I think i understand it now, but now im thinking what happens when he falls into the 40% tax bracket he will be paying 60% tax after he has paid his workers

John_Pierpoint

Even if he has been paying the "subbies" a net of tax figure, so the public purse is not much at risk.
With the number of people who seem to be involved, at least one of them is likely to put something on their return that that does not add up.
Don't forget that there are multiple rates of tax, especially for your parter, who the system will think is coining it in, and two tax systems, the other one being called National Insurance.

See other threads on here on the lines of "HMRC are investigating me and my life is now a nightmare" and those are posted by people, who claim to have done nothing worse than put their Xmas cards through the business franking machine.

:wave:

Cross posting, I think we are agreeing with each other in that he needs to declare all those working for him to avoid paying "bankers" rates of marginal tax.

PS I date back to working on construction sites in the days of "The lump", where labour only subbies bunked off back to Ireland (Eire) without paying their taxes - some of them are now living in near destitution, because they did not get any UK benefits either.

linzi1uk

the thing I cant get my head around is when he has to pay 40% tax on his earnings and then take off 20% tax for his subbies he would only be left with a wage of about £132 a week, surely that cant be right can it

Pennywise

linzi1uk wrote: »

the thing I cant get my head around is when he has to pay 40% tax on his earnings and then take off 20% tax for his subbies he would only be left with a wage of about £132 a week, surely that cant be right can it

No it isn't right.

The 20% subbie tax isn't your partner's tax. If the subbie charges £100 for a day, then he pays them £80 and pays over the £20 to HMRC on their behalf. The cost to him is still £100 per day.