Help with paying contractors..

Lifeisbutadream

I hope someone can help?

We run a small joinery/building business. We are extremely busy at the moment and are contracting work out to up to 4 joiners, 2 plumbers, 2 plasterers and 2 brickies.

We cannot take them on as 'employed' (they are all self-employed and would not want to be 'employed' by us, plus we cannot afford to take the risk in case we do not stay this busy)

As we have not been in this position before I am unsure of what I should do regarding tax. They all hold CIS cards, so should I be paying their tax at 20/30%? if so, how do I go about this? Currently they are just invoicing me and I am paying them.

Would really appreciate some help. Thanks.

adypem

Lifeisbutadream wrote: »

I hope someone can help?

We run a small joinery/building business. We are extremely busy at the moment and are contracting work out to up to 4 joiners, 2 plumbers, 2 plasterers and 2 brickies.

We cannot take them on as 'employed' (they are all self-employed and would not want to be 'employed' by us, plus we cannot afford to take the risk in case we do not stay this busy)

As we have not been in this position before I am unsure of what I should do regarding tax. They all hold CIS cards, so should I be paying their tax at 20/30%? if so, how do I go about this? Currently they are just invoicing me and I am paying them.

Would really appreciate some help. Thanks.

If they are self employed surely its up to them to pay their own tax... So them invoicing you, and you paying is correct (I think..)

Hope this helps, if not couldn't you ask your accountant ?

Lifeisbutadream

adypem wrote: »

If they are self employed surely its up to them to pay their own tax... So them invoicing you, and you paying is correct (I think..)

Hope this helps, if not couldn't you ask your accountant ?

Thanks - I agree, I dont really see why I should work as an unpaid tax collector! I am already doing that with VAT! but sometimes when we contract to someone else, they deduct 20 or 30% tax. I think I am probably supposed to do something, but I am not sure what.

(I am in the process of changing accountants, because my old one didnt know much, including what I was supposed to do re tax payments for contractors!)

Bean_Counter

Lifeisbutadream wrote: »

As we have not been in this position before I am unsure of what I should do regarding tax. They all hold CIS cards, so should I be paying their tax at 20/30%? if so, how do I go about this? Currently they are just invoicing me and I am paying them.

I take it you are aware of the changes to the CIS scheme from April 6 this year?

The old CIS cards are now irrelevant. You should have received mountains of info from HMRC on it.

Probably the easiest way to do (there are different ways) is to call the HMRC CIS helpline. They will ask you for your Unique Tax Reference number (UTR), your tax office accounting reference, your NI number (or company registration number if incorporated.) They then ask for the subbies UTR and NI number. You then want them verified, they tell you whether to deduct tax at 0%, 20% or 30% and give you a verification number to quote on the monthly return.

In summary, once you verify the subbie with HMRC, they tell you which rate to use.

I note from your later post that some of your customers deduct tax at 30%. Make sure that they have your UTR etc as mentioned above and ask them to reverify you. Then the rate should drop down to 20% and help your cashflow.

Also have a look at IR56 on HMRC website for the old employed vs self-employed thing. HMRC really cracking down on you old CIS4 types on this and can be really expensive if you get it wrong (can't post links at the moment.)

As for being an unpaid tax collector, that's par for the course as a contractor! You pay over any tax you have deducted from others with your monthly PAYE, less any tax that you have suffered from your customers.

I also mentioned the monthly return above which is new under the new CIS scheme. This also needs to be monthly by the 19th of the following month.

Let me know if you want me to expand on any of this.

Lifeisbutadream

I am aware that there were some changes on 6th April, but simply have not had time to look into it. As far as I am aware we have not received anything through the post.

The employed vs self-employed - could you expand on this? what are they cracking down on? the contractors we have are all self-employed with their own businesses. My OH does work for them when they need it and they do work for us when we need it. We do several jobs a week and we just pass on teh work to a contractor. There is no way that we are employing them! we would have the potential of losing thousands of pounds!

Obviously I have not been deducting anything yet, could there be a problem with this or will it be OK if I just start doing it as soon as possible? This ridiculous amount of works make mes realise why some people just work cash in hand and dont declare anything!

Bean_Counter

Lifeisbutadream wrote: »

I am aware that there were some changes on 6th April, but simply have not had time to look into it. As far as I am aware we have not received anything through the post.

The employed vs self-employed - could you expand on this? I really dont understand it.

Obviously I have not been deducting anything yet, could there be a problem with this or will it be OK if I just start doing it as soon as possible? This ridiculous amount of works make mes realise why some people just work cash in hand and dont declare anything!

I would go onto the HMRC and read the CIS340 document.

This should cover all aspects of the scheme. This and IR56 covers employed vs self-employed as well. This is all about whether your subbie should be paid as self employed or should be an employee under PAYE.

I think the fact that you have not deducted anything yet could well be a problem, and in the eyes of HMRC it is your problem as the contractor rather than the subbies fault, so they will be in no hurry to draw your attention to this.

I would call the CIS helpline on 0845 366 7899. HMRC are actively targetting businesses such as yours, and if you leave it too long and get caught, the back tax, charges and penalties and interest would be horrendous.

Lifeisbutadream

Bean_Counter wrote: »

I would go onto the HMRC and read the CIS340 document.

This should cover all aspects of the scheme. This and IR56 covers employed vs self-employed as well. This is all about whether your subbie should be paid as self employed or should be an employee under PAYE.

I think the fact that you have not deducted anything yet could well be a problem, and in the eyes of HMRC it is your problem as the contractor rather than the subbies fault, so they will be in no hurry to draw your attention to this.

I would call the CIS helpline on 0845 366 7899. HMRC are actively targetting businesses such as yours, and if you leave it too long and get caught, the back tax, charges and penalties and interest would be horrendous.

How could they back-tax when the contractor has paid his own tax? - you say 'get caught' - I am not taking any money from the tax man - I am simply not paying someone elses tax.

Bean_Counter

Lifeisbutadream wrote: »

How could they back-tax when the contractor has paid his own tax? - you say 'get caught' - I am not taking any money from the tax man - I am simply not paying someone elses tax.

Unfortunately that is not the way the tax man sees. Every time I go to a seminar on this type of thing it gets worse and worse.

For example, HMRC see that if appropriate you should deduct under the CIS scheme. In fact they push hard to try to reclassify a subbie (especially labour only subbies) as employees and hence taxed under PAYE because there is more tax in it. Now they even disregard any tax that the subbie might have paid over. For example, HMRC say you owe £10,000 of tax. You say but subbie has already paid this to you. HMRC say tough, and subbie doesn't even get a refund of the tax paid!!!

Another example. My company has gross payment status. I can't remember the exact details, but if we are late with 3 of any of PAYE payments, VAT payments, directors personal returns or more than 14 days late with any of them, then your gross payment status is in jeopardy!

It gets more and more difficult, but that is the price of being a contractor! I could go on but I'm on holiday and I'll get myself depressed and start on the beers (oh too late!)

If I were you I would register for the CIS scheme. Don't expect HMRC to logical or reasonable when it comes to CIS.

Lifeisbutadream

I have registered now - thanks for giving me the number.

Like I said before there is no wonder that people just work cash in hand. You go through the correct motions and they try and get more from you!

We would not be earning enought to pay out a huge tax bill, so if they decide they want more than we already pay then they would have to bankrupt us. We have worked hard for the past 18 months and are starting to build up a business - we are certainly not rolling in it!

Regarding the employed/self-employed - all of our jobs we subcontract are on a 'price' the contractor can get it done however he likes, i.e. he can sub-contract it out again if he wants to, so I dont see how they could possibly say that they are 'employed' by us.

I love the way the HMRC thinks every self employed person is loaded! We lost £2000 last week through under-quoting. We still had to pay to blokes who did the work, and we still have to pay for the materials, but we were out of pocket. The tax man doesnt care about that though, eh?

Edit - or the fact that we only pay ourselves £400 per week (between 2 of us) so that we have enough cash flow to pay for materials and new tools and OH often works 14 hours a day! - oh and - whats a day off?

Strangled

I agree with Beancounter, I sub-contract a couple of days per week and have 20% deducted, CIS cards are not in use now. You need to ring the tax office with their Unique tax reference number and possibly their NI number, and the tax office will tell you what rate to take off. At the end of each month I recieve a statement of gross earnings and tax deducted.

Tax vouches were just the same in my opinion and easier......less printing costs for the IR in my eyes.

Bean_Counter

Lifeisbutadream wrote: »

I have registered now - thanks for giving me the number.

Like I said before there is no wonder that people just work cash in hand. You go through the correct motions and they try and get more from you!

We would not be earning enought to pay out a huge tax bill, so if they decide they want more than we already pay then they would have to bankrupt us. We have worked hard for the past 18 months and are starting to build up a business - we are certainly not rolling in it!

Regarding the employed/self-employed - all of our jobs we subcontract are on a 'price' the contractor can get it done however he likes, i.e. he can sub-contract it out again if he wants to, so I dont see how they could possibly say that they are 'employed' by us.

I love the way the HMRC thinks every self employed person is loaded! We lost £2000 last week through under-quoting. We still had to pay to blokes who did the work, and we still have to pay for the materials, but we were out of pocket. The tax man doesnt care about that though, eh?

Edit - or the fact that we only pay ourselves £400 per week (between 2 of us) so that we have enough cash flow to pay for materials and new tools and OH often works 14 hours a day! - oh and - whats a day off?

I really do understand all of your frustrations.

All I can say is good luck for the future. Let me know if I can be of further assistance.