I would like to know more about CIS and I need some help if possible.
1. Is it that the builders are paid 20 % less than the advertised wages and than after the tax return they get the tax back if their total annual income is below personal allowance of £ 9440 ?
2. If they earn in excess of £ 34,370, the higher rate threshold, do they have to pay 40 % tax ?
3. Are the construction related expenses allowable, like boots, construction clothes, tools, etc ?
I think tools are plant so 25,000 for a 12 moths period of account can be claimed (y.e 5 April 2013)
Any information that will help me understand bookkeeping for CIS is highly appreciated.
Kind regards,
Adrian
__________________
This is just my personal opinion. Advice should be sought from a suitably qualified Accountant.
P.S. I only ride a motorbike because I want to dry my clothes faster
from the tax viewpoint, a cis subbie will be taxed the same as any other self employed person, so work out their taxable profit, add any other taxable income there might be, calculate their tax liability and then deduct the tax paid at source which may or may not give a refund. As you say, if the taxable profit plus other income is less than their personal allowance they should get all their tax back.
Definitely claim for protective clothing and tools. If tools are consumables and need regularly to be replaced and/or if they cost below, say £150 (or whatever you think is reasonable for that client) then put straight through the P & L as 'small tools and consumables' rather than capitalising. If a heavy bit of kit is bought, then yes capitalise and claim either AIA if available (yes I would consider it plant) or capital allowances. You will probably find that motoring expenses will be the biggest expense.
Are you aware that CIS is not 'applied' to employees earning wages - it is only applied to Subcontractors and Contractors when they raise their Customer/Supplier invoices. The 20% deduction is applied to the net amount of the invoice (not on materials, hire of equipment, VAT etc) and then only if the subcontractor is 'verified' with HMRC. If the subcontractor is not verified (i.e. is not registered as a subcontractor with HMRC) then the deduction has to be 30%.
Gross status can be claimed by a business under certain conditions so that no deduction is made on invoices.
Also - it is possible for a trader to come under the CIS scheme on some of the work he does, and not others. For example, a client of mine provides 'cleaning' services. When they provide everyday cleaning services to supermarkets, offices etc, this does not come under the CIS scheme, but when they provide cleaning services at the end of a 'build' such as a new supermarket that's been built and cleaning is required prior to opening - this is classed as 'construction' work and therefore comes under CIS and my client has 20% deducted from their invoices prior to payment.
It could also be that if a builder hires a 'subbie' to help him build a couple of walls in the garden of a domestic customer - then this would not come under CIS, so no deduction would have to be taken from your subcontractors invoice before you paid him, however, if you were contracted to help on a local new supermarket site - and you hired the same 'subbie' to help you, you'd have CIS deducted from the invoice you gave to your customer (because you're their sub contractor) and you would have to deduct CIS from your sub contractors invoice before you paid him.
If you have deductions taken from your customer invoices prior to payment - these are called CIS 'suffered' and if you are a Limited company with employees, you would be entitled to offset the CIS suffered deductions against PAYE/NI liability payments. This offset can't be used for sole traders or partnerships though - they have to claim it back under their self assessment by way of putting it as 'tax already paid'.
I hope this makes sense and gives you a little more insight........my apologies if I've tried to teach you to suck eggs!
Carol
__________________
Carol Saunders Lady of Ledger Book Keeping Telford, Shropshire
