Obligations
If you are a CIS contractor you have an obligation to register with HM Revenue & Customs before you take on your first sub-contractor. You can register online, by email or telephoning the new employers helpline on 0845 607 0143. You will need to know both your national insurance number and your unique taxpayer's reference.
Checking and verifying your sub-contractors with HM Revenue & Customs
You must ensure that the contract that has been agreed is not one of employment.
A contractor before making payments to a sub-contractor must check the sub contractor's status with HM Revenue & Customs. To help they have a tool on their web site called The Employment Status Indicator (ESI) which can be used to ensure the correct status.
As a contractor you must ensure you have the following information for your sub-contractors.
Sole trader: –
Name
Tax reference (UTR)
National Insurance number
Partner: –
Partnership's name
Partner's names
Partner's tax reference or tax reference
Company: –
Company name
Company tax reference (UTR)
Company registration number
Once you have gathered this information you contact HM Revenue & Customs to verify the sub-contractor and HM Revenue & Customs will check that the sub-contractor is registered with them.
You can telephone on 0845 366 7899
No deduction of tax is necessary if HM Revenue & Customs has indicated that no deduction is necessary.
If a deduction is required the contractor must: –
– Calculate the amount to be deducted
– Make the deduction
– Record details of the payment, materials and deduction
– Make the net payment to the sub-contractor
– Complete the statement of deduction to the sub-contractor
All I can suggest is that if you are a contractor you have your procedures checked by your accountant to make sure you comply with the regulations. Failure to do so can be very expensive.
Sending monthly returns to HM Revenue & Customs
The monthly return can be filed either using paper or electronically. It must be filed by the 19th of the month following the month concerned which ends on the 5th and not the last day.
Nil returns must be made.
The return must be written confirmation of: –
– The contractor's name
– The contractor's tax reference
– The month to which the payments refer and the payment date
– The sub-contractors name
– The sub-contractors tax reference, known as their UTR
– The total amount of payments in the tax month
– The amount of materials
– The amount of tax deducted
– The verification reference supplied by HM Revenue & Customs
The return has two statements to consider. You are required to confirm that you have considered the employment status of the sub-contract workers and the other is that the verification process has been applied correctly.
If you fail to submit the monthly return on time you will receive an automatic £ 100 fine.
No return is required where payments are made gross without deduction of tax.
Giving your sub-contractors proof of the deductions
The voucher that is required to be provided to sub-contractors, which incidentally is much the same as was required on the vouchers under the old scheme, can be sent electronically.
Making the correct deductions from your sub-contractors
HM Revenue & Customs will then tell you as the contractor what rate of deduction, if any, is to apply. It will be that you should pay without deduction of tax or that you should deduct tax at either 20% or 30%. Make a careful note of the of the verification number provided.
HM Revenue & Customs now have the power to cancel registration for gross payment. If this happens you will have tax deducted at 20%. HM Revenue & Customs can also cancel registration for payment under the deduction of tax at the rate of 20%.
This will leave the sub-contractor facing tax deductions at the punitive rate of 30%.
When deciding how much to deduct you take the gross amount and deduct the VAT, if any, charged by the sub-contractor if registered for VAT. You also deduct any CITB-Construction Skills levy.
The other amount to be deducted is the amount paid by the sub-contractor, including VAT if the sub-contractor is not registered for VAT, for: –
– Materials
– Consumable stores
– Fuel except that used for travelling
– Plant hire
– The cost of manufacture or prefabrication of materials
The contractor may ask the sub-contractor for evidence of the cost of materials.
Penalties
There is a whole raft of penalties within the scheme for either not doing some thing or for getting it wrong.
If you fail to send in the monthly return the penalty is £ 100 per 50 sub-contractors per month or part of a month. If the late return shows no tax due the penalty is not reduced and remains £ 100.
There is an additional penalty for each extra month late and this continues for twelve months at the same rate.
Where the return is over twelve months late there is a penalty £ 3,000 of.
If you fraudulently or negligently send in an incorrect return the penalty is up to 100% of the under declared CIS deductions, subject to mitigation.
If you fail to produce CIS records to HM Revenue & Customs when requested the penalty is up to £ 300 plus up to £ 69 per day for the continuing failure.
If you fail to provide a pay slip to a sub-contractor the penalty is up to £ 300 plus up to £ 69 per day for the continuing failure.
The penalty can be up to £ 3,000 for making a false statement in order to register for gross payment or payment under deduction.
The same penalty of up to £ 3,000 is also due if you make an incorrect declaration either fraudulently or negligently about the employment status.
Link Useful – Http://www.hmrc.gov.uk/cis