Self employed carpenters

landa7719

All taxed at 20%

oldbikebloke

landa7719 said:

Yes all the tax deducted from any invoice  for works done is paid to HMRC by the company using my utr number. I get paid the net to my bank and give him half. 

then you are potentially in deep do do since your client has reported your existence to HMRC, notified them of how much tax has been deducted for YOU, yet you seem to be under the impression you can do as you please on your tax return? You cannot unilaterally decide what you will tell HMRC when they have evidence from a third party that will contradict what you intend to do 

let us start again:

• what work do you do / what sector do you work in?
• 20% tax deduction implies your client is satisfied you are registered under CIS - is that true?

landa7719

We do general carpentry, timber frame extensions and loft conversions. On private housing. 

oldbikebloke

landa7719 said:

We do general carpentry, timber frame extensions and loft conversions. On private housing. 

LOL, just noticed the clue was in the title of the thread "self employed carpenters" !
the fact it is "private" housing is irrelevant - you work in construction and clearly you work for clients who know about tax deductions from gross 

you are working as sub contractors and are categorically within the scope of CIS 

the fact your client has deducted only 20% is  worrying because to do that they must have confirmed that you are registered under CIS, otherwise they are required to deduct 30%. Looks like both you and they are in error..

there is a reason CIS exists, it is because HMRC has a VERY short fuse when it comes to dealing with the tax affairs of people working in construction and are very likely to issue penalties if they decide you are not following the rules 
PLEASE get both of yourselves sorted out by reading and applying the CIS rules . 

https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor

if you find it all too daunting, then get an accountant to help you get started for a year. The accountants fees will be a lot less than dealing with an HMRC enquiry and possible penalties. 

Jeremy535897

I think there is a danger of over complicating the situation here. OP can confirm, but the way I read it is that OP and friend are separate sole traders and always have been. This is a critical assumption and everything else I say depends on this. References to UTR numbers etc suggest OP and his friend are sub-contractors who are subject to 20% CIS tax at source, and I assume they both complete SA returns showing self employment income every year. OP is not a gangmaster, and is not earning the full amount paid to OP and friend and paying friend as a sub contractor.

The oddity here is that the contractors are effectively treating OP and his friend as partners in a partnership, when they are not. This is an error by the contractor and needs to be put right as soon as possible. I am assuming OP and friend do not want to form a partnership. This comes with various risks, including joint and several liability, and involves a new UTR and SA return for the new partnership, bank account etc.

The simple answer is that OP and friend should each declare on the SA return their share of the income received from the contractor, and claim their share of the CIS tax paid. They should also explain in the notes on the return that the total CIS tax deducted has been accounted for under OP's UTR, giving details of the total tax and how it is allocated, and the total amount received and how it is allocated between the two of them. It may be that they will get the refunds they claim (if there are refunds), but OP may also get enquiries due to the fact that the gross income and tax deducted that he declared will not match the amounts allocated to his UTR on the contractors' returns. Hence the recommendation for an explanatory note. His friend may indeed be asked to prove that he actually suffered the CIS tax. That is why it should be put right going forward.

landa7719

Thank you all for your time in helping me come to a solution. That is I am seeking help from an accountant for the first time and also never working under these terms again. I shall update this thread once I have an accountants take on it all.