This is my first time posting, exciting to see what sort of response I will get and thanks in advance for any help.
I have a client who basically has been paying a subcontractor and deducting the 20% tax for the year 2009/10. He has a record of all payments and deductions but heres the thing! The subcontractor in question has never gave him any UTR or NI details and has always said he's waiting for HMRC to come back to him with them.
THE PROBLEM: Believe it or not my client therefore decided not to included him in any of the monthly returns albeit he was paying him and keeping a record of deduction. He only came to me at the start of Jan 2011 and I have had to explained to him that because we will be including the cost of this subcontractor in his accounts we will also including all the deductions as well, as a liability to HMRC. Moreover, I also said to him that he should have been deducting 30% due to the fact he was not verified
Sorry for rambling basically what I am asking is what steps should I take or what advice should I gave the client?? I have his accounts prepared and his tax assessment ready for submission but this is the only thing i need to resolve. I am inclined to get him to just contact the CIS helpline explain the situation and offer to pay whats owed?? I am just concerned that they will impose the extra 10%
Any help or advice would be welcome and appreciated.
Presume 2009/10 is the 2010 tax year - if so, this period is effectively closed. The P35 will be wrong. It needs correcting.
For 2010-11, if he hasn't already done so, get the guy verified. If he's not registered for CIS, get him registered. Strictly speaking, anything paid before registration should also be subject to 30%.
Thinking about it, the above are my thoughts as to what should be done, but I think I'm going to take the easy way out and suggest ringing the CIS helpline. You need to make sure that your client isn't going to get into a worse mess. If the extra 10% needs paying, it's probably unlikely he'll be able to claw that back from the subcontractor.
CIS is neutral in that it doesn't increase the amount a contractor pays, but I fear in this case it will.
If the subcontractor was waiting for HMRC to come back to him, your client should have helped the process along by deducting 30%. Nothing like an extra 10% being deducted to focus the mind!
One of the most frustrating things that contractors do is pay new subbies before they've been verified.
You're right about clients paying subbies before they've been verified - and without collecting even their address. But I did come across a subbie who thought it wasn't worth the trouble of registering simply to avoid paying another 10% off his invoice in tax. Strange world ..
(However, I did find out his details and verify him).
-- Edited by AICB on Thursday 27th of January 2011 11:15:32 PM
The thing that would worry me, is your client has knowingly filed incorrect returns but signed a statement to the contrary. Which I'd think is the worst thing he could have done. He'd have been better off declaring the subbie at 20% than not at all.
The "waiting for HMRC" excuse is nonsense, it's your clients responsibility to verify the contractor, irrespective what the subbie says. As Nick posted - nothing focus's a subbies mind quicker that a 30% deduction.
I've posted a link below, always find that useful when others do it, reading it - Nick's advice is spot on and you should call the CIS helpline.
This is an interesting thread as I have a guy on the CIS scheme. Normally everything is fine and he pays HMRC once a month no probs. He dosen't always need extra help on site because up until recently he was fairly quiet due to the recession. Anyway just finishing off some paperwork now for him and he has used a friend for some labour on site. Now the friend is self-employed but not in the building trade, he fits fires and solar panels and doesn't have anyone working for him. His friend has just invoiced him for Labour there is no VAT to worry about as friend is not VAT reg and below threshold. My client hasn't deducted the 20% off his invoice as his friend has not got a number for CIS. Is this OK that he has just paid the invoice as normal with no deductions?
I would also like to point out that he would only work for my client occasionally on a labour only basis if my client req'd extra help. Most times my clients would use a subby from his own trade and they invoice him accordingly with the CIS stuff.
So what are peoples thoughts on this? Do I need to advise his friend to become CIS reg although he probably would never subby himself out? Hope all that makes sense as not too sure what to do?
THanks,
-- Edited by Amanda on Friday 28th of January 2011 11:48:28 AM
Im just having a coffee so i thought i though make the most of it and get back to you.
As far as I am aware the whole idea of being cis registered is the same as being self employed. As every self employed person has their own utr number (Unique Tax Reference) for tax purposes, all payments to and from hrmc are allocated to that number which Identifies the individual along with their national insurance number.
If your friend provided labour to a contractor in the building trade perhaps that would be looked at as coming under CIS and therefore he should have been verified to establish wether he should have paid him the gross amount or the amount after tax had been deducted.
Of course the argument could be that he will pay the tax in the course of his own accounting anyways and the big house will get there money anyways! But we dont make the rules we just play by them. Calling the cis helpline would probably be advisable to hear the last word on it. I think their number is: 0161 930 8706.
Hope it helps
Noel
ps Does anybody know if you can actually phone the revenue and speak to them anonymously to get their guidance. I know its not like that for vat but general issues, anyone??
When my guy spoke to me about it, as hes usually very hot on his CIS payments although like I said hasn't had to do many recently. I explained that he couldn't deduct it as he had NO UTR ref number for his friend. I am now thinking that perhaps his friend, (who is soon to be my client as well), needs to maybe register himself with CIS, he has regisitered with HMRC for Self-employement. His friend is a new start up business so I think I should talk to his friend and point out the situation and maybe ring the helpline first to find out my facts before speaking to him.
Another one that gets me - subbies who think that having a UTR means that they're registered for CIS!
Amanda, would agree with Noel, it's the kind of work which does it. The occasionalness of it is irrelevant, although in reality he may probably use it as the excuse for not registering.
I think I will ring the helpline and ask, I am of the opinion that maybe his friend should be regisitered. His friend is now on holiday but I know him well so will speak to him in a couple of weeks time when he is back.
Hi good afternoon, Just wanted to say this is an interesting thread and has proved extremely helpful to me as i have a client who is in the same boat as Amanda's..using a friend for occasional labour and paying a final invoice rather than deducting CIS. So just want to say a big thanks to you all as i can take all your advice on board.
Cheers.
-- Edited by blondie on Monday 31st of January 2011 12:35:39 PM
Hows things? Firstly, thanks for your advice it confirmed my own thoughts on the matter. I managed to reslove the matter for the client.
Firstly, I should mention that I found out on friday morning that the subbie of my client did actually have a utr number and had been registered for CIS but obviously was still unverified by my client. He was sent a registration letter in 09 that went on top of a pile of other unopened mail i guess. However, belive it or not Nick the subbie never really thought much of the situation until my client explained the problems with him not being registered and in turn not being verified. He then decided to have a rumage through his post and turned up with on Friday morning with it!
Anyways, I contacted the revenue and they were very helpful. I explained the whole situation but at the same time stressed that my client was trying to get his affairs in order and that the annual returns were ready to be submitted and liability paid with immediate affect.
With that said we were able to verify him there and then. Then after open up the months of deduction for the year in question and re-apply the gross and tax figures providing the payment due would be made within the coming days.
So thats it really, thankfully. My advice to anyone else reading the thread would be to follow the advice of Nick and myself, contact the revenue if you have a situation similar to the one in question!
The revenue can be really helpful. There website has really all you need to know, they provide free tutorial classes and then even if your still unsure you can even phone them for advice. Need I say the only thing missing is a free phone number!! however I suppose that would have been the first to go in the budget anyways!
