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Many small scale property developers don’t realise that the Construction Industry Scheme (CIS) applies to them.
HMRC are also looking very closely at Landlords (Investors) to see if they should register too…
Until now property investment has been excluded from CIS but HMRC say this is under review
For now let’s focus on Property Developers, here are a few facts:
- Property development is a trade it includes building new buildings and improving or refurbing existing buildings
- Property developers will be contractors because they employ subcontractors – bricklayer, carpenters, painters, electricians, plasterers etc
- There is no lower limit below which you do not have to operate CIS
- Subcontractors, especially Labour Only subcontractors need to have their employment status tested
- Subcontractors need to be verified with HMRC to determine their tax status before they can be paid
- Each month the Developer will need to file a return with HMRC of subcontractor deductions
- Each month the subcontractors must be given a deduction statement
- CIS applies to all types of Developer – Individuals, Partnerships and Companies
Failure to comply means big penalties
Here are some penalty horror stories!
Brian Parkinson a gardner and lanscaper who used occasional subcontractors and got £31,500 in CIS Penalties!
The FTT heard evidence that little or no loss of tax resulted from this omission, as the amount of tax Parkinson ought to have deducted under the CIS was put at £837.90. [Brian Parkinson and the Commissioners for Her Majesty’s Revenue & Customs TC04526; Appeal number: TC/2013/00224].
This comprised £6,000 (5 x the £1,200 maximum) charged under the Taxes Management Act 1970 (TMA 1970), s98A(2)(a) and also month 13 penalties of £25,500 charged under TMA 1970, s. 98A(2)(b). – See more at: https://www.accountancylive.com/partial-win-gardener-over-%E2%80%98excessive%E2%80%99-cis-penalties#sthash.zJA59Gjv.AfCNNGRJ.dpuf
INCOME TAX – subcontractors – appellant company contracted with a third party provider to supply “operatives” – third party provider “net” for CIS purposes – company’s failure to make CIS returns – fixed monthly penalties of £28,500 – Month 13 penalties of £56,500 – whether reasonable excuse – held, no – whether disproportionate as a breach of A1P1 – Tribunal’s jurisdiction and interaction with mitigation – Bosher followed – fixed penalties upheld – Month 13 penalties set aside as excessive – appeal allowed in part
If you’re a property developer make sure you register for CIS with HMRC!
If you need help contact us
Recently Zero Hours Contracts were in news, the BBC reported on 5th August 2013:
The Business Secretary Vince Cable fears zero-hours contracts are being abused after research suggested a million people could be working under them.
I think that employers may be tempted to switch from Zero Hours to Freelance Contractors.
PCG published this story on 3rd July 2013:
Demand from UK businesses for contract workers is continuing to rise in 2013, which could be good news for freelancers looking to get their foot in the door on a lucrative new project.
Why is it attractive to use Freelancers?
- Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
- Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
- Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
- Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
- 110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.
So is it a mission impossible for salaried employees to make the transition to Freelancers
Years ago you would go to a formation agent and buy an off the shelf company and re-name it but now its much easy to create a company from scratch using a formation agent. There are many agents out there, but you could use http://www.company-wizard.co.uk where you can form a company from £16.99 or you can do it direct with Companies House.
You will need to know:
- The company name (that hasn’t already been used and isn’t restricted)
- The names, addresses and dates of birth for directors and shareholders
- Registered office address
- You will also need to security information for the directors and shareholders (eye colour, mothers maiden name, place of birth)
The company will often be formed within a day, once you know the company registration number you can open a bank account. To do this you will normally need to visit your bank and show them two forms of ID.
HMRC will send form CT41G to the registered company address.
The CT41G form is issued to newly registered companies. This form includes your company’s Unique Taxpayer Reference .You will need it to contact HMRC. It also tells you what you need to do if your company has become ‘active’ and suggests other tax implications your company may need to consider.
HMRC will also ask if you want to appoint an agent (accountant) and this is done with form 64-8.
To register for PAYE you will need to know:
- name, business name, partner’s name, company name (as appropriate)
- business or home address, including postcode (as appropriate)
- business or home telephone number
- a contact email address
- a contact telephone number
- a name and address to send correspondence to
- the date of your first payday or, if earlier, the first date you made payments of expenses and/or provided benefits to your employees
Follow this link if you need to register for the Construction Industry Scheme http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=039zI-xtZZw
VAT registration is done on line http://www.hmrc.gov.uk/
As a general rule, you should keep your records for a minimum of six years. However,
if you are:
• an employer, you need to keep Pay As You Earn (PAYE) records for 3 years
(in addition to your current year)
• a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS
records for 3 years (in addition to your current year)
• keeping records to complete a personal (non business) tax return, you only need to
keep them for 22 months from the end of the tax year to which they relate.
If you need to keep records for other reasons, for example the Companies’ Act
requires limited companies to keep specific records and you also use those records
for tax purposes, you need to be aware that there may be different time limits for
retaining them. Be careful not to destroy any records you also use for tax purposes
Niall O’Driscoll FMCA CGMA