Sub Contractors/tax

[Marigold101]

Hi I hope this is the right place and that someone can shed some light on this for me.

OH started a painting and decorating business around a year ago. It has done well and grown quite quickly. All good.

He has had to have the help of two other guys. I was under the impression (possibly mistakenly) that they could invoice us, we would settle that and they would declare and pay their own tax.

Have been told today by a book keeper that we have to calculate their tax, take it off invoice, pay them amount without tax and then pay their tax for them.

Sorry for such a long and pretty boring post!

I think it depends. Plenty of subcontractors pay all their own tax -i always do and that is perfectly lawful.

However I believe some industries have special HMRC rules such as construction workers where sometimes tax or just NI is paid by the company paying the contractor even though the subcontractor is self employed. I would ask the book keeper for more details because it may be they are muddling two different schemes or they may be correct.

Hi Greengrow,
Thank you that's very helpful.
I think as long as contractors are also registered as a business in their own right then they are responsible for their tax.
Will take more advance and also consult HMRC to be double sure.

Take further advice, because the law changed a couple of years ago ... Of a subcontractor is an individual and is reliant on one contractor for all their work, then they are deemed to be employed by that contractor, and the contractor is obliged to pay their tax as employees.
HMRC were very strict with this within construction, and a lot of other industries where people were effectively employees but acted as self employed.

You might think that but I'm afraid you would be wrong.

The fact you are asking the question suggests you are not aware of the Construction Industry Scheme. As your husband is running a painting and decorating business it is covered by the CIS. He is required to verify subcontractors with HMRC. When HMRC verify a subcontractor they will tell him whether to pay them gross or make deductions at either the standard rate (20%) or the higher rate (30%). Also, as the previous poster said, there are circumstances in which a contractor must be treated and taxed as an employee.

Yes, that sounds right. I bill 30 companies a month at least and clearly I am not even if I were doing construction work employed. if a builder brings in a plumber for one day of work that is probably outside the scheme too (but check) but if the plumber is working day in day out for that builder the builder will have to take the tax off.

We are also in the building trade - and sometimes have to employ subbies.
You CANNOT just pay them - even if they are self employed and pay their own tax.
If they are self employed, the ONLY way you can pay them is using the CIS [construction industry scheme] rules and then only if they are registered with HMRC as part of the CIS.

You need to register with HMRC for this. It's not difficult, but a bit time consuming. If you phone the CIS helpline they will talk you through it. You will need to register for their online services, allow a couple of weeks for this as they send you the password through the post

When this is set up, you can start to pay subbies. When they give you an invoice, log on to the CIS section of HMRC and follow the link to "verify subcontractor". Assuming they are registered, you can then pay them deducting 20% off the labour and vat element of the bill. You can also verify subbies over the phone.
The helpline is actually, very helpful, so if you get stuck, give them a ring.
Then every month you fill in an online form and pay over the tax. If you have not paid anyone, you still need to fill in a "nill return". Don't forget, there is a £100 fine if you do.

Of course, this assumes they are self employed, and not "employed" [as defined by HMRC] in which case you would face the joys of PAYE!

"As well as traditional construction businesses like builders, the scheme can also apply to businesses like:

labour agencies and staff bureaux
gangmasters - or gang leaders
property developers

Even if your business or organisation doesn't do building work, it might still be a mainstream contractor or HMRC may treat it as a 'deemed contractor' - and require it to register with CIS - if it spends more than an average of £1 million a year on construction operations over a three year period. The types of businesses and organisations that this could apply to include:

some large businesses
housing associations
other 'arms length' management organisations (ALMOs)
local authorities
government departments
other public bodies".

(HMRC)

So someone like I am - nothing to do with construction no deductions - paid gross plus in my case VAT. All the software contractor agreements I advise on too no question of tax being taken off before any subcontractor is paid and same in just about every industry except construction but as soon as it is construction which presumably plumbing is then it looks like the scheme applies.