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Hello there, I am an electrical contractor and have been

Resolved Question:

Hello there,

I am an electrical contractor and have been trading as a sole trader for a number of years. When a project or workload dictates it, I draft in extra help, usually just one person.
This gentleman invoices me for the work done and I pay him a gross amount without deductions.

I am currently expanding and will need more people to work for me on this basis.

My query is this;- Is it ok for me to pay existing and prospective people on this basis? Whereby they invoice me for works done and I pay them the gross amount. Or do I need to deduct 20% from them and pay it over to the Revenue on a monthly basis?

Also, Is there a set of conditions that can lead to me continuing to pay any contractor who works for me on the current basis of invoice and gross payment?

Any advice would be greatly appreciated.

Regards, Rob
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.

Hi Rob

 

Thanks for your question

 

As you are engaging this individual to work alongside you then you should be registered for the CIS scheme and thereby making appropriate tax deductions from this gross payment as a Contractor - this will also require the subbie to register within the CIS scheme (as a subcontractor) also.

 

Its ok when you call upon another skilled tradesman for a couple of hours work to assist with the work as they come along use their own tools, work just for duration of the job requirement, work the hours that suit them, and could make a profit or a loss of the job. So they clearly remain self employed so you can pay them gross. This individual however, works the hours you require from them, they cannot make a profit or loss, and they may well use some of your tools/materials. So they fall within the remit of employment - but through the Construction Industry can just have tax deducted rather than tax and National Insurance (as employees under PAYE do)

 

You need to get registered as a contractor ready for the next job, and advise all workers that you take on to also get registered as subcontractors, then when they give you their 10 digit unique taxpayer reference (UTR) , you can verify them with HMRC as to what tax deductions you need to make.

You will have to file a monthly CIS300 return and also provide the subcontractors with a payment and deduction statement, detailing your business name and address, your 10 digit UTR, their name and address, the payment date, gross payment and the tax deducted. You then pay them the net amount, and pay the tax deducted over to HMRC (also monthly)

 

I have added a link here for you to get the ball rolling to register

 

http://www.hmrc.gov.uk/cis/contractors/reg-obs.htm

 

This also details in more depth your obligations to HMRC.

 

Do feel free to ask any follow up questions, but if I could trouble you to rate the level of service, I have provided, it would be appreciated, as this ensures Just Answer pay me.


Thanks


Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13692
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 3 years ago.

Hello Sam,


 


Thank you for your detailed answer. It clarifies things very nicely for me, thank you.


 


If I were to register on Monday and take the necessary steps;- Will I then be fined by the revenue as it appears that I have been paying my worker incorrectly for the last year?


 


Thank you in advance.


 


100% positive rating will be what I click.


 


Regards, Rob

Expert:  Sam replied 3 years ago.

Hi Rob

 

Ideally you should backdate your registration and then yes, there will be fines - however anything you paid up until 05/04/2012 would fall under exemption due to double taxation IF the individual filed their 2012 self assessment return and has paid all the tax owed, but of course anything since 06/04/2012 (To year end 05/04/2013) , would not have required the individuals self assessment to be filed until 31/01/2014, and the taxes paid by that date, so you will be held responsible for any returns due since that date and any tax due. Plus fines for the late CIS monthly returns (Up to a maximum of £3000) and interest on late taxes.

 

I cannot advise the best course of action, but I can advise that if you did not declare this backdated date, and HMRC were to discover his, then the fines would be heftier.

You might find it prudent to get an accountant to handle this element for you to negotiate with HMRC accordingly. They can push the charges down.

 

Thanks


Sam

 

 

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