Taking on a helper

Discussion in 'Builders' Talk' started by Hoskie, Oct 23, 2005.

  1. Hoskie

    Hoskie New Member

    Some of you may of seen my post with regards VAT, well also im thinking of using a labourer for some of the jobs that I have but the problem is that when I prepare my invoice for the work and the labourers rates are included on this then I will be paying tax on his earning and it will look like I have earned more at the end of the year so my tax bill will be higher. Am I right or is there a way round this?
     
  2. Depends how you pay him, if PAYE it all comes out in the wash, if your paying him cash, then yes technically his income will appear as yours and you pay tax on it.
     
  3. Hoskie

    Hoskie New Member

    Chhers Mudster. The lad in question is CIS registered so how would I go about that as some jobs I do 18% is deducted from me under the CIS.

    Cheers
     
  4. ­

    ­ New Member

    Are you saying your employee is CIS registered and you're not?

    If this is the case you have to pay him 100% (no deduction) of his earnings even though your draw from the job will be less 18%.

    Example (let's assume you and your employee have half the money each):

    Job draw £1,000

    Less 18% = £720

    Employee gets £500 (half of £1,000)

    You get £220!

    This situation is even worse when you employ several people who are CIS registered (and you're not) as their wage bill can be more than the 'after tax' draw.

    Example:

    Job draw £1,000

    Less 18% = £720

    Wage bill (say £800)

    You get minus £80!

    Obviously this is all resolved through your tax return but in the meantime you are running at a loss or at best, minimal profit.

    Why aren't you CIS registered?
     
  5. ­

    ­ New Member

    Sorry, the £720 should say £820!

    Same principle applies though.
     
  6. Also rememebr if you provide this guy with 30% of his annual income you are obliged to employee him PAYE and not as a sub.

    I think it's 30% - you'd better check that figure to be sure.
     
  7. Hoskie

    Hoskie New Member

    Yes I am CIS registered so how do I stand with paying him a day rate not a split on the job total. Iv got work that I want doing that he can do that I simply dont have time to do but can ill afford to turn work away.

    All coments are much appreciated lads thanks.
     
  8. ­

    ­ New Member

    Yes I am CIS registered so how do I stand with paying
    him a day rate not a split on the job total. Iv got
    work that I want doing that he can do that I simply
    dont have time to do but can ill afford to turn work
    away.

    All coments are much appreciated lads thanks.


    If you are CIS registered, why do some contractors stop 18% of your money as you said earlier?

    I assume from this, that you only have a CIS4 (Registration Card) and not a CIS6 (Subcontractors Tax Certificate)

    Your CIS status is irrelevant when you are paying someone else, it's their CIS status that matters. If your man has a CIS6 then you have to pay him in full.
     
  9. Hoskie

    Hoskie New Member

    Yes its a CIS4P not the CIS6. My point is that if I invoice the customer for the total amount including my labourers wage then I am liable for paying his tax. How would I differentiate mine from his when it comes to tax?
     
  10. ­

    ­ New Member

    Yes its a CIS4P not the CIS6. My point is that if I
    invoice the customer for the total amount including
    my labourers wage then I am liable for paying his
    tax. How would I differentiate mine from his when it
    comes to tax?

    You won't pay his tax, he will when he files his tax return.

    Your payment to him is a tax deductable expenditure for your business, just the same as any other business expense such as materials or plant hire.

    So say you invoice your customer for £5,000 labour, of which £2,000 is for your labourer's wages, then your accounts will show an income of £5,000 and an expenditure of £2,000 leaving a £3,000 'profit'. (This is the same, mathematically, as the customer paying the labourer £2,000 direct and paying you £3,000 direct)

    However, if you are invoicing a builder and he deducts 18% because you only have a CIS4 Registration Card, then yes, initially you have paid more tax than you should have but you can claim this back through your tax return. The problem you face is financing this overpayment in tax in the meantime.

    So, using the same example as above the builder will deduct 18% leaving you with £4,100 of which you pay your labourer £2,000. You now have just £2,100 for yourself. Your accounts will show this and they will also show that you have paid £900 in tax through deduction. At the end of the year, when your accounts are filed, this £900 tax will be a credit on your accounts as 'tax already paid'. Often this method means you get a tax rebate at the end of the year instead of a tax bill!

    The problem (as I have said) is financing this though the year as this theoretical £900 is in the Government's Bank instead of yours until your accounts are filed.

    It is generally agreed that if you only have a CIS4 Registration Card, (rather than a CIS6) it is not practical to employ anyone as the whole labour invoice is liable to 18% deduction.
     
  11. Hoskie

    Hoskie New Member

    Ok cheers for that. Am I better off getting the CIS6 I wonder, as I am taking on more work that I intend to sub out I dont want to be responsible for paying other peoples tax.
     
  12. chappers

    chappers Member

    Hoskie you don't need CIS 6 that just means you are CIS exempt and responsible for your own tax and that anyone you sub-contract for can pay you gross.

    What you need to do is register as a contractor, phone up the revenue and they will set up a scheme for you and send you out vouchers.
    When you pay your guy you take his NI number and CIS number and fill it in the voucher you then deduct 18% from his gross pay, fill in the relevant bits and by the 19th of the following month send the vouchers and any tax you have deducted from him to the revenue.
    at the end of the tax year the amount you have paid him included his tax is set against your total income as an expense and you therefore don't pay any tax on that amount.
     
  13. Has the COntractotr status changed then?

    I think I've used my CIS card twice in the years I've had it, however I originally applied for a full contractors certificate and was told I had to have a minimum net profit average over the last three years of £35K and trade from somehwere other from my home address.

    Is this no longer the case?

    Just curious.
     
  14. Washboy

    Washboy New Member

    If you employ someone you have to deduct tax for them unless they have a tax certificate- not many labourers will have one of those.
     
  15. Washboy

    Washboy New Member

    With a CIS4 card you can register as a contractor, employ labour and deduct tax for them.
    If you want full payment from a builder and you want to pay your tax you'll need a tax cert, the one where you need to earn more than £35k. Not sure what the procedure is now - I've heard they are changing the cis scheme to make it easier to use (we'll see). No more vouchers, apparently. What genius thought of those anyway?
     
  16. Hoskie

    Hoskie New Member

    Thanks for all the comments lads, much appreciated. And yes the CIS system is all changing. Its all detailed on the inland revenue site. this is the link.

    http://www.hmrc.gov.uk/pdfs/ir40cis.htm

    Cheers again lads.
     

Share This Page

  1. This site uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
    By continuing to use this site, you are consenting to our use of cookies.
    Dismiss Notice