Confused! Self employment, Tax and CIS

wensday

Hi all, thanks for taking the time to read.

My partner is in construction and recently moved to England. He was advised by colleagues to be self employed, so we sorted his UTR.
I'm struggling with the next step.
When he goes onto his HMRC account it says theres nothing added to it.
I've googled all kinds, but can't figure out what to do next. I *think* he needs to fill in a CIS form, but he hasn't earned over the 'turnover' amount due to moving from Ireland. It advises to fill in the 'payment under deduction' form instead, which seems to be 20% tax?
Is this right?
If so, we will complete it and send it off, but what is he supposed to do after that? Its making me nervous we will do something wrong and get jailed for tax evasion!! I work for NHS so I've never really had to think about tax, work sorts it all out for us!
Thanks again:)

00ec25

you and he need to learn a few words otherwise you'll struggle to understand the relationships and thus how CIS tax works

we will take as read he is "self employed" (the veracity of that status is a very much longer answer) so he will be working as a sub-contractor

he will do his work for a main contractor

he is NOT an employee of the main contractor, instead he is working in an industry rife with tax dodgers and people being paid cash in hand "off the books". To address that we have CIS

Payments made to sub-contractors
the main contractor has a legal duty to deduct tax from the labour element of the work done by their sub-contractors. They retain that money and pay it over to HMRC, along with obviously a list of which subcontractors (UTR) it relates to.

if the subcontractor is registered for CIS the main contractor must deduct tax at 20% rate

if the sub-contractor is NOT registered for CIS, the main contractor must deduct tax at 30%

your partner's tax position with HMRC
at the end of the tax year your partner collates his self employed accounts, works out his profits and how much tax he owes against those profits

he submits a tax return having calculated how much he owes less how much has already been deducted from his earnings through CIS main contractor deductions

HMRC look at the records of tax deducted by the main contractor, check they have indeed received that amount of money against his liability and then agree the net position - either he owes a bit more, or he has been "over-deducted" and gets a refund.

A refund occurs because he claims shed loads of expenses and thus his taxable profits per his accounts are substantially lower than the gross amount that the main contractor deducted 20% from.

doubtless his workmates will teach him exactly how to fiddle his accounts (labour v "other" costs) so he gets a refund each year.

have you really not read the guidance?
https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor

escaping CIS
in the truly remarkable circumstance that he is assessed as being trustworthy (ie his turnover is big enough and he has a history with HMRC of being a good boy) he can apply to "leave" CIS and therefore be paid gross without deduction by the main contractor.

His tax return continues to show how much he must pay, but this time he has not already paid some of it in advance (through CIS deductions) so has to find the full lump sum himself when it is due.

As tax can be paid as late as 9 months (31 jan) after the end of the tax year (previous 5 April) he earned the money in, if he does attain "gross" status he will need to remember not to spend the tax money. That is an all too common failing of many such people, wherein he won't be able to physically pay the tax and he'll be facing uncomfortable decisions over where and how to find the cash (or he can just take some out of his cash in hand jobs stash from under the bed).


(I hope you will appreciate the above is tongue in cheek - we have a lot of CIS clients)

wensday

You are an actual superhero. Thank you so much! Yes I have read the .gov advice, however it's complex and confusing (and I am an intelligent woman).
I can absolutely believe many of his colleagues are evading tax, going off the general 'types' of people he talks about meeting in his day-to-day work.

This is really very helpful, makes lots of sense. I was concerned we were missing something.

tebthereb

00ec25 wrote: »

you and he need to learn a few words otherwise you'll struggle to understand the relationships and thus how CIS tax works

we will take as read he is "self employed" (the veracity of that status is a very much longer answer) so he will be working as a sub-contractor

he will do his work for a main contractor

he is NOT an employee of the main contractor, instead he is working in an industry rife with tax dodgers and people being paid cash in hand "off the books". To address that we have CIS

Payments made to sub-contractors
the main contractor has a legal duty to deduct tax from the labour element of the work done by their sub-contractors. They retain that money and pay it over to HMRC, along with obviously a list of which subcontractors (UTR) it relates to.

if the subcontractor is registered for CIS the main contractor must deduct tax at 20% rate

if the sub-contractor is NOT registered for CIS, the main contractor must deduct tax at 30%

your partner's tax position with HMRC
at the end of the tax year your partner collates his self employed accounts, works out his profits and how much tax he owes against those profits

he submits a tax return having calculated how much he owes less how much has already been deducted from his earnings through CIS main contractor deductions

HMRC look at the records of tax deducted by the main contractor, check they have indeed received that amount of money against his liability and then agree the net position - either he owes a bit more, or he has been "over-deducted" and gets a refund.

A refund occurs because he claims shed loads of expenses and thus his taxable profits per his accounts are substantially lower than the gross amount that the main contractor deducted 20% from.

doubtless his workmates will teach him exactly how to fiddle his accounts (labour v "other" costs) so he gets a refund each year.

have you really not read the guidance?
https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor

escaping CIS
in the truly remarkable circumstance that he is assessed as being trustworthy (ie his turnover is big enough and he has a history with HMRC of being a good boy) he can apply to "leave" CIS and therefore be paid gross without deduction by the main contractor.

His tax return continues to show how much he must pay, but this time he has not already paid some of it in advance (through CIS deductions) so has to find the full lump sum himself when it is due.

As tax can be paid as late as 9 months (31 jan) after the end of the tax year (previous 5 April) he earned the money in, if he does attain "gross" status he will need to remember not to spend the tax money. That is an all too common failing of many such people, wherein he won't be able to physically pay the tax and he'll be facing uncomfortable decisions over where and how to find the cash (or he can just take some out of his cash in hand jobs stash from under the bed).


(I hope you will appreciate the above is tongue in cheek - we have a lot of CIS clients)

Great post, informative and full of cynicism 👍

MovingForwards

My brother uses an accountant to deal with his, all he does is keeps records (mileage, expenses eg tools, repairs etc, payment details from the jobs he contracts for) and sends them to the accountant. The accountant then processes everything for HMRC and gives my brother the figures on what to pay, what's deducted for what and what tax refund he will have.

He pays a couple of hundred for the accountant to do the work.