I've been in the construction game for several years now and I've recently taken on a self employed person to help me handle the work load.
All this time, the contractors have paid my CIS - which is the 20%. I'm now confused as how to how it translates to paying my lad. Say I invoice £1000 to the contractor, and they pay my CIS, giving me £800. My lad invoices me £300 which then I pay him £240 - which is already from CIS deducted money. Isn't this being taxed at a 40% rate now? Am I doing something wrong here or am I genuinely out of pocket on this portion? Or do I get the missing extra money back at the end of the year?
Whats the method that's required to avoid this if there is one?
What you are doing is correct, the CIS tax that you are having deducted by the Contractors is still in effect your money, at the end of the tax year this will either go towards paying your tax bill or result in a refund, the only way around this would be to apply for 'gross status' for CIS.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
What you are doing is correct, the CIS tax that you are having deducted by the Contractors is still in effect your money, at the end of the tax year this will either go towards paying your tax bill or result in a refund, the only way around this would be to apply for 'gross status' for CIS.
Morning Doug
Or become a Ltd Company in which case you can offset it.
-- Edited by Leger on Tuesday 9th of August 2022 11:49:02 AM
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
What you are doing is correct, the CIS tax that you are having deducted by the Contractors is still in effect your money, at the end of the tax year this will either go towards paying your tax bill or result in a refund, the only way around this would be to apply for 'gross status' for CIS.
Morning Doug
Or become a Ltd Company in which case you can offset it.
-- Edited by Leger on Tuesday 9th of August 2022 11:49:02 AM
Hi John, How's things?
Yes forming a Ltd Company would be another option
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Well, you are thinking you are £60 down on this set of transactions? But on the £700 profit you made on this you owe £140 in income tax, you've paid £200 of course CIS so you'd be getting £60 refund on this little lot. Which puts you in the correct position (£700 less 20% = £560). Of course there will be a whole load of ins and outs at the end of the year but often it helps just to think of it like this, in isolation, to understand the workings.
It sounds like you may be misunderstanding how the Construction Industry Scheme (CIS) works. CIS deductions are not income tax but rather advance payments towards the subcontractor's tax and National Insurance liabilities. Here's how it typically works:
You invoice the contractor for £1000.
The contractor pays you £800 after deducting 20% CIS (£200).
You then pay your subcontractor £300.
From the £300 payment to your subcontractor, you deduct 20% CIS (£60).
Your subcontractor receives £240.
So, your subcontractor is not being taxed at a 40% rate. The CIS deductions are essentially prepayments towards their tax bill. Your subcontractor will report their income and CIS deductions on their tax return, and any excess CIS deductions can be claimed back as a refund or offset against their tax liability for the year.
To ensure you're handling CIS correctly and to avoid any issues, it's advisable to keep accurate records of all payments and deductions, and to seek advice from a tax professional if needed. Additionally, consider registering for the CIS helpline or accessing online resources provided by HM Revenue & Customs (HMRC) for guidance on compliance with CIS regulations.
Youre not getting double taxed. You get £800 after your CIS, and when you pay your lad £240, that's after his CIS. Track all your deductions and claim back from HMRC at year-end. Keep good records, and maybe consult an accountant.
When you pay your lad, the CIS deduction has already been taken from his invoice, so he gets £240 out of the £300. You're not taxed at 40% on his payment; you're managing the CIS deduction for him.
