self employed contractors.wages/tax

Discussion in 'Employment & HR' started by Redd, Jun 9, 2013.

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  1. Redd

    Redd Full Member

    210 13
    Hi, Just started my own Driveway Business and have two guys doing the majority of the work for me, I have arranged an hourly rate or sometimes pricework, I'm a bit confused regarding tax, we are a limited company, before when I worked as self employed I got my wages and paid my own tax but an accountant said to me I should be holding back 30% of their wages for tax, I really would rather not do this and just let them pay their own taxes but not sure as dont want big bill at the end. help ;-/
     
    Posted: Jun 9, 2013 By: Redd Member since: May 4, 2013
    #1
  2. StevensOnln1

    StevensOnln1 UKBF Legend

    3,468 752
    First you need to establish if they are really employees or subcontractors. There is a check list on HMRCs website to help you determine which they are.

    Sent from my GT-P1000 using UK Business Forums
     
    Posted: Jun 9, 2013 By: StevensOnln1 Member since: Dec 10, 2011
    #2
  3. Redd

    Redd Full Member

    210 13
    well there 2 guys who fit driveways, they are not employed so must that make them sub contractors? they are definately not employees yet,
     
    Posted: Jun 9, 2013 By: Redd Member since: May 4, 2013
    #3
  4. Swisaw

    Swisaw UKBF Ace

    1,843 149
    Simply ask them to sign a contract of working for you as self-employed and they are responsible for their tax and NI. But this may not be as simple as that. Check the guidelines of Inland Revenue about that.
     
    Posted: Jun 9, 2013 By: Swisaw Member since: Sep 24, 2010
    #4
  5. MegaCoach(tm)-Matt Barnet

    MegaCoach(tm)-Matt Barnet UKBF Newcomer

    1 0
    Hi there,
    I am afraid your accountant is right. Welcome to the world of the Construction Industry Scheme, one of the most ridiculous schemes around in my opinion. If you are involved in construction related activities, and you employ labour that is not on P.A.Y.E. then you need to be registered with the C.I.S scheme. That is YOU as someone who employs sub contractors need to be registered and THEY the subcontractors both need to be registered.

    Why would you bother ?
    Firstly it's a legal requirement
    Secondly and most important for you. If you have employed a couple of guys to do some work and then have paid them, if they then go on and don't pay their tax. YOU become responsible for paying it...ouch. The revenue will chase YOU and not them for the money as what should have been paid to them should have been post deductions.

    What do you do?
    When you come to pay your subcontractors, you are supposed to call a number and have them 'verified. If the subcontractor has registered then the agent at HRMC will tell you that the company or individual is registered and that you are to stop their money 20%.
    If the agent at HRMC comes back and tells you that the company or individual is not registered, they will tell you to hold back 30%.

    You stop their money at the appropriate rate, you then need to provide them with a proper receipt for the deduction.

    Once you have registered yourself, you will be sent a big yellow book of vouchers that you need to fill in and send off every month even if you haven't employed anyones labour. That is you file a 'zero' c.i.s return.

    It is important that you do. As the way the fines work is a pyramid scheme and in any other form of business would be illegal. It's not difficult to get yourself in a lot of financial trouble by not following the rules where c.i.s is concerned.

    You can apply for exemption from the scheme . You will need to have been on it for around 9 months and sent in your c.i.s return and paid the tax on time religiously before they even consider exemption.

    There are aspects of the scheme which are not taxable. Materials shouldn't be taxed, so for example if your subcontractors are buying the materials that they work with you should only stop them 20% or 30% on the labour element of their bill.

    It's a really awful system and I feel for you having to work with it.
    One thing you could do is use an employment agency, temporary staff agency and get your guys to register with them. That will avoid you having to do the c.i.s yourself but will cost you in terms of commission. There is no easy way around c.i.s it sucks, and if you ignore it do so at your peril.

    When you call and register - you haven't yet used any sub contract labour have you? HAVE YOU? If when you are talking to the people at hmrc you are asked the question 'when did you first start using self employed labour?' and you say 'oh about 18 months ago, i didnt know anything about c.i.s ! The nice people at HMRC will hit you with a fine for every month you didn't send in a return, compounding monthly and an estimate of what you owe them. A friend of mine ended up with a bill for £8,000.00 nice !

    They are NOT nice people nor are they helpful. The best thing to do is familiarize yourself with the system, and become very disciplined at doing what is required
    Here is a link to the relevant Hmrc page .

    Hope hat helps and good luck
    Matt
     
    Posted: Jun 9, 2013 By: MegaCoach(tm)-Matt Barnet Member since: Jun 9, 2013
    #5
  6. Caspar

    Caspar UKBF Regular

    231 40
    If they are self employed then you need to be set up as a contractor, you will get their UTR (unique tax ref number), NI number, DOB, Address! Full name or trading name if they are Ltd. You then ring the CIS (Construction industry scheme) to 'verify' them as a subcontractor.

    Once you do this you will be asked to deduct either 20% tax or 30% tax from their pay. (20% is usually if they are registered as subbies and 39% is if they are new to being a subbie which can later go down to 20%.

    If they work for you regularly I would suggest that they are indeed your subbies if not employees. As if they say did a couple of jobs throughout the year and gave you an invoice for you to pay them without deductions this might be ok, but regular work would denote Employee or Sub-Contractor status. Either of these means you will need either a PAYE (pay as you earn) scheme setting up or this together with a CIS scheme.

    If you set up a CIS scheme, you need to submit a cis return monthly by the 19th of the following month or face a £100 fine per month of non-submission and pay over the tax you have deducted. Or if a PAYE scheme you would need to make a submission report called (FPS) under Real Time Information on or before each time they are paid, next year similar fines of up to £100 per month will be brought in for late submission on these too, and pay over monthly the tax and NI deducted.

    Also if anyone who is a subbie buys materials and reclaims the cost, you would only base the 20 or 30% deduction on the figure before materials then add materials back onto on to their payment due.

    You cannot continue to regularly have people working for you without putting them onto one of these schemes as HMRC will say they are either an employee or a sub-contractor.

    Eventually if your books are ever looked at by HMRC, you could be asked for tax and potentially NI that should have been deducted - from you not them. Think about it no-one gets paid without paying tax, unless they are a business who does work for lots of other people.

    I am an accountant and have seen a few people come a cropper over this a few years down the line - so you really need to act now.

    Caspar
     
    Last edited: Jun 9, 2013
    Posted: Jun 9, 2013 By: Caspar Member since: May 23, 2013
    #6
  7. Caspar

    Caspar UKBF Regular

    231 40
    If they are self employed then you need to be set up as a contractor, you will get their UTR (unique tax ref number), NI number, DOB, Address! Full name or trading name if they are Ltd. You then ring the CIS (Construction industry scheme) to 'verify' them as a subcontractor.

    Once you do this you will be asked to deduct either 20% tax or 30% tax from their pay. (20% is usually if they are registered as subbies and 30% is if they are new to being a subbie which can later go down to 20%.

    If they work for you regularly I would suggest that they are indeed your subbies if not employees. As if they say did a couple of jobs throughout the year and gave you an invoice for you to pay them without deductions this might be ok, but regular work would denote Employee or Sub-Contractor status. Either of these means you will need either a PAYE (pay as you earn) scheme setting up or this together with a CIS scheme.

    If you set up a CIS scheme, you need to submit a cis return monthly by the 19th of the following month or face a £100 fine per month of non-submission and pay over the tax you have deducted. Or if a PAYE scheme you would need to make a submission report called (FPS) under Real Time Information on or before each time they are paid, next year similar fines of up to £100 per month will be brought in for late submission on these too, and pay over monthly the tax and NI deducted.

    Also if anyone who is a subbie buys materials and reclaims the cost, you would only base the 20 or 30% deduction on the figure before materials then add materials back onto on to their payment due.

    You cannot continue to regularly have people working for you without putting them onto one of these schemes as HMRC will say they are either an employee or a sub-contractor.

    Eventually if your books are ever looked at by HMRC, you could be asked for tax and potentially NI that should have been deducted - from you not them. Think about it no-one gets paid without paying tax, unless they are a business who does work for lots of other people.

    I am an accountant and have seen a few people come a cropper over this a few years down the line - so you really need to act now.

    Caspar
     
    Posted: Jun 9, 2013 By: Caspar Member since: May 23, 2013
    #7
  8. Redd

    Redd Full Member

    210 13
    thanks for your help guys, 30% is rediculous, I dont know how I now instead of giving them say £500 a week now give them £350!, not ideal but if thats the way it is then so be it
     
    Posted: Jun 9, 2013 By: Redd Member since: May 4, 2013
    #8
  9. David Griffiths

    David Griffiths Verified Business ✔️

    11,357 3,561
    It's only 30% if they haven't registered themselves as subcontractors. If they have it will reduce to 20% and if they've paid too much they can get it back at the end of the year.
     
    Posted: Jun 9, 2013 By: David Griffiths Member since: Jun 21, 2008
    #9
  10. Mart62

    Mart62 UKBF Newcomer

    24 1
    I am in the scaffolding industry supply and fix.

    I split my invoices mainly 50/50 labour/materials

    Any advice on if this is the correct way to do it. I have always presumed it is upto me how I split the invoice.

    Martin
     
    Posted: Aug 31, 2013 By: Mart62 Member since: Jul 18, 2009
    #10
  11. David Griffiths

    David Griffiths Verified Business ✔️

    11,357 3,561
    The first question is "what materials?" Are you actually selling the scaffolding to your custmers - that is what you are implying?

    If you are simply hiring the scaffold (which is the normal thing) then you aren't supplying any materials and the full amount is liable to deduction.

    HMRC link

    If you are actually suppling materials, in the sense of selling them to your customer, then the allocation should be the actual cost of the materials to you.
     
    Posted: Sep 1, 2013 By: David Griffiths Member since: Jun 21, 2008
    #11
  12. Tom McClelland

    Tom McClelland UKBF Legend

    2,872 789
    Labour/Materials split is a matter of fact, not a matter of opinion or choice. If you're supplying materials for the job then you show the value of the materials you've purchased on the invoice to your client. Hiring the scaffolding would presumably come under this.
     
    Posted: Sep 9, 2013 By: Tom McClelland Member since: Feb 10, 2008
    #12
  13. eldirect

    eldirect UKBF Newcomer

    42 4
    Its called tax Redd and everyone, even construction workers has to pay it. I'm not fond of the CIS scheme, but then again i'm really not fond of tradespeople who think it is their right not to pay tax like everyone else does either.

    They may actually be employees if they only work for you and like the people above have said you need to check.

    If the two guys are in the industry they should be used to the CIS scheme. If they are new to it you have to tell them that's how it works. Tax is tax.
     
    Posted: Sep 9, 2013 By: eldirect Member since: Jun 19, 2013
    #13
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