Paying sub contractors

[Darren McNiven]

We have a property development company and I'm looking to see what other businesses do in terms of paying sub contractors/tradesmen for their work.

My questions is when paying sub contractors/companies do you just pay their total invoice amount to them and allow them to declare their own earnings OR do you pay them as a sub contractor through a scheme like CIS and deduct the tax from their invoice?

I would normally think it would be the first option, surely it is their responsibility to pay their own tax on the service provided rather than us.

 

[Scalloway]

Deducting CIS is a legal obligation, not an option. Too many building sub contractors in the past did not pay their taxes.

 

[Newchodge]

OR do you pay them as a sub contractor through a scheme like CIS

That's a novel way to talk about a compulsory HMRC setup. Do you pay your employees through a scheme like PAYE?

 

[Newchodge]

To answer the main thrust of your post, as a property developer you are clearly involved in construction. Therefore you must register as a CIS Contractor and pay all your sub-contractors, whether they are multi-national companies or individual tradesmen, via CIS.

 

[estwig]

All the property developers I know just pay their contractors full invoice. They are not subcontractors. As you do not have a contract with someone else, you are not subcontracting the work out, you are contracting the work out.

 

[Newchodge]

Hi estwig, does that mean that, for example, Balfour Beatty don't pay their sub-contractors via CIS?

 

[KAC]

Maybe have a look at this

 

[Newchodge]

Maybe have a look at this

Thanks KAC, I had forgotten that property developers were specifically listed as CIS contractors.

 

[Darren McNiven]

So understanding this then, as a development company if we use AA Kitchens to supply & install our new kitchen on the back of providing the best value quote, we should pay that quote fully as appose to making any deductions for CIS surely. Can we not employ them as a contractor, pay their full invoice and expect them to pay their own tax Ni etc.

 

[KAC]

You didn't read the booklet did you
"Under the scheme, all payments made from contractors to subcontractors, must take account of the subcontractors’ tax status. This may require the contractor to make a deduction, which they then pay to us from that part of the payment that does not represent the cost of materials incurred by the subcontractor"
They have to break the cost down between labour and materials and unless they have gross payment status, you have to operate CIS on the labour element

 

[Darren McNiven]

You didn't read the booklet did you
"Under the scheme, all payments made from contractors to subcontractors, must take account of the subcontractors’ tax status. This may require the contractor to make a deduction, which they then pay to us from that part of the payment that does not represent the cost of materials incurred by the subcontractor"
They have to break the cost down between labour and materials and unless they have gross payment status, you have to operate CIS on the labour element

Lol, i'm sorry I never even seen your first post, but very grateful. That answers that then. Thank you for your help - very appreciated.

 

[alang23]

We have a property development company. The procedure is quite simple but can be confusing. It is certainly painfully slow as you have to do a summary to submit to HMRC every month.

Firstly you HAVE to deduct CIS off ALL subcontractors....doesn't matter if they are individuals or a company.
NO deduction apply to suppliers eg Builders Merchants and you pay them in full, as they are suppliers not contractors. The same applies if you get staff from an Agency.

Regarding individuals or a company carrying out 'sub-contractor' work...THEY have to contact HMRC with THEIR UTR number and NI Number (or you can do it). If they are 'known' to HMRC a 20% deduction applies, if not 30% applies. You then apply that deduction to their bill/invoice. If they supply materials that is deducted off their invoice for CIS purposes, as CIS only applies to the 'labour' element
Then every month you have to supply HMRC with a summary/return and pay the total CIS deductions off all labour or companies to HMRC. For example you may give HMRC a return on the 4th of the month and you have to pay the CIS deductions to HMRC by the 19th (or could be 15th - can't remember as we pay it straight away as always want to pay HMRC up on time !!).

If you don't apply CIS and pay them gross, you may well find that you become liable to pay their CIS to HMRC as you neglected to deduct it. !!!

We've had some very difficult discussions with some people who want/demand a 100% payment with no deduction. We have no option but to employ others, who know the CIS system, as we are not paying tax for other people.

CIS was brought in by HMRC because there were so many people in the construction industry simply not paying tax or using a variety of different names to avoid tax for a few months before 'changing' their name (eg Smith/Jones/Bloggs) to continue on for further time without paying tax.

If you want to know more PM me.

Regards

 

[Newchodge]

To summarise. Anyone who supplies labour (with or without supplying materials) must invoice you showing materials and labour separately. You pay materials costs in full and you make CIS deductions from the labour element. You deduct 20% if your sub-contractor/worker has registered with CIS and you deduct 30% if they have not.

Every month you send an online return to HMRC setting out the CIS deductions made, and you pay those deductions to HMRC, every month.

Apart from the admin it costs you nothing. You still pay 100% of your sub-contractors bill, you just pay some to them and some to HMRC

 

[Darren McNiven]

We have a property development company. The procedure is quite simple but can be confusing. It is certainly painfully slow as you have to do a summary to submit to HMRC every month.

Firstly you HAVE to deduct CIS off ALL subcontractors....doesn't matter if they are individuals or a company.
NO deduction apply to suppliers eg Builders Merchants and you pay them in full, as they are suppliers not contractors. The same applies if you get staff from an Agency.

Regarding individuals or a company carrying out 'sub-contractor' work...THEY have to contact HMRC with THEIR UTR number and NI Number (or you can do it). If they are 'known' to HMRC a 20% deduction applies, if not 30% applies. You then apply that deduction to their bill/invoice. If they supply materials that is deducted off their invoice for CIS purposes, as CIS only applies to the 'labour' element
Then every month you have to supply HMRC with a summary/return and pay the total CIS deductions off all labour or companies to HMRC. For example you may give HMRC a return on the 4th of the month and you have to pay the CIS deductions to HMRC by the 19th (or could be 15th - can't remember as we pay it straight away as always want to pay HMRC up on time !!).

If you don't apply CIS and pay them gross, you may well find that you become liable to pay their CIS to HMRC as you neglected to deduct it. !!!

We've had some very difficult discussions with some people who want/demand a 100% payment with no deduction. We have no option but to employ others, who know the CIS system, as we are not paying tax for other people.

CIS was brought in by HMRC because there were so many people in the construction industry simply not paying tax or using a variety of different names to avoid tax for a few months before 'changing' their name (eg Smith/Jones/Bloggs) to continue on for further time without paying tax.

If you want to know more PM me.

Regards

Brilliant post, very helpful thank you!

 

[estwig]

Hi estwig, does that mean that, for example, Balfour Beatty don't pay their sub-contractors via CIS?

Most property developers, aren't really. Someone buys an old house, does it up and sells it at a profit. When the house is bought, the intention and the truth may be to live in it, it needs doing up first, so you pay people to do it up. If I want my ceiling plastered at home, I don't register for anything with the tax man. If once the house is finished, there is a change of heart and the house gets sold, then tax is due on a profit and costs get deducted.

Property developer, is pub boasting rights!

 

[STDFR33]

Most property developers, aren't really. Someone buys an old house, does it up and sells it at a profit. When the house is bought, the intention and the truth may be to live in it, it needs doing up first, so you pay people to do it up. If I want my ceiling plastered at home, I don't register for anything with the tax man. If once the house is finished, there is a change of heart and the house gets sold, then tax is due on a profit and costs get deducted.

Property developer, is pub boasting rights!

A lot of property developers get caught out with CIS.

Ignorance isn’t really acceptable to HMRC, however.

 

[Newchodge]

Property developer, is pub boasting rights!

That's possibly the case and if someone buys a house with the intention of living in it, and pays contractors to do work on it, they would not be subject to CIS, even if the decided at the end to sell it rather than live in. They would just be subject to Capotal Gains Tax. However if they did it serially - sell the first one, buy the next, do the same, they would be doing it as a business and would have to use CIS.

The OP did say that he had a property development company and wanted to know what other businesses did.