Tax return question - Payments under CIS

[IrrelevantElephant]

If anyone is knowledgeable about tax returns and the CIS (Construction Industry Scheme) I'd be so so grateful.

Next year we'll get an accountant, but we can't afford one this year.

DH has been working as a 'subcontractor' for the same company for the whole year, and has earned 22K. He has done no other work - his only income this year was as a subcontractor from this company, who have paid him monthly and given him payslips etc. They paid him 'under deduction', which meant they deduced 20% before they paid him (£4,400 deducted)

We have done a tax return, and I was under the impression we would be due money back, as he shouldn't have paid any tax on his first £8K or thereabouts, but having filled in the form, it says he needs to pay Class 2 NI contributions (we knew about this) and class 4 NI's (we didn't know about this - he's never earned over the threshold before). This means in total, he'll end up paying 30% tax this year - which seems like a HUGE amount for someone who earned under 22K - is it right?

I'm no expert but it does look a bit high.

How have you got the 30%?

20% already deducted + 9% class 4 NI contributions + approx 1% class 2 NI contributions. I think!

Oh yes, that is right on the income over the personal allowance/NI limit.

But there is obviously going to be a chunk with nothing to pay on. I thought you meant the tax calculator had made it 30% on the whole lot. Sorry.

I haven't dealt with any CIS deductions myself but from what I understand the CIS deductions are a payment on account, and will be deducted from any tax payable at the end of the year.

On the figures you've given and assuming your DH has a standard Personal Allowance (i.e. tax code of 810), you would be due a tiny bit of tax back:
Income tax =(£22,000-£8,105)x20% = £2,779
Class 2 = £2.65 x 52 = £137.80 [though this should have been paid already if he was registered as self-employed and didn't have a low earnings exemption]
Class 4 = (£22,000-£7,605)x9% = £1,295.55

Total payable = £4,212.35
CIS tax already paid = £4,400
Amount to be repaid = £187.65

So yes, you would be paying approx 30% on all earnings over your allowances but your overall tax burden is 19%. I think people often forget about NI as politicians never refer to it as a tax .

have you put the CIS deducted onto his form?

Class 4 has ALWAYS been there : its the equivalent of NI : get used to it.

Talkin- yup, put CIS deducted, it's coming up with a rebate of approx £200.

Last year he earned 6K, and had paid £1,200 tax on that (CIS deducted, no class 4 NIs as under threshold).
This year, we naively assumed his rebate would be that plus a bit more. Was really counting on the additional money back, and it's really knocked us that we're getting less back now. Can see how it works now though, and fair enough, I just thought there must be some mistake at the beginning. Gutted.

Thanks all for your help though, at least I'm not spending hours taking through the form thinking we've filled it in wrong!

Sorry- meant to say last year his rebate was all £1,200 tax he paid, and we thought that was because you don't pay tax on your first 8K, so assumed we would get that amount back every year as the "rebate" for the tax he paid on his first 8K IYSWIM. We we wrong though, I get that now.

Get an accountant: if turnover is similar this year she should be able to save you at least £2,000 before paying her fees, which should be less than half that, although it is too late to put the necessary structures in place for last year.

Hasn't he got any expenses? Travel to (a temporary place of) work? How is your work in the business remunerated? (Do you have any other income?) Every £100 of expenses incurred is worth £29 in tax and NI. Again an accountant will help you ensure you are claiming all the expenses that are allowable.

Most accountants are very familiar with CIS and how to ensure construction contractors don't lose more of their hard-earned income in tax than they should.

Too late now- I submitted it online exactly like last year, thinking it would be super easy and we'd get our £1,200 back again (hardly even mentioned expenses since we got all the money back last year without submitting expenses), and got told our total rebate was like £200, which Is why I assumed I'd done something wrong and posted here.

If we get an account now and amend it, it's going to look crazily dodgy/illegal. Just one of life's lessons I guess- will definitely get an accountant next year. Thanks though!

not too late
get an accountant to submit an amended return in the next few months
they will save you more than they cost

Can't see if he's sole trader or limited company and if he is CIS registered or not.

DH is ltd co and bills his client monthly, who then deducts 20% at source before it pays the invoice, and provide statement of deductions. DH is then paid a monthly salary by his own company and any PAYE/NICs from that salary is due to HMRC, however as this is always less than 20% of the billled value of the works he never actually has to pay any more to HMRC. After end of tax year when DH's Ltd Co PAYE return is done he requests a refund from HMRC for the "deductions suffered under CIS" to get the over deducted amount back.

Hope that makes sense, can't be more specific in your case as it's not clear to me how your DH's run his affairs. IME the CIS helpline is very helpful.

"If we get an account now and amend it, it's going to look crazily dodgy/illegal."

No it's not, this is absolutely routine and it is your legal right to correct an error (due to not claiming expenses you were entitled to claim) within 12 months of the deadline for submission of the return (so for 2012/13 by 31 January 2015).

Don't delay before getting an accountant though, you can only start saving that £2,000 once you have incorporated the business and registered for VAT on the Flat Rate Scheme.

"IME the CIS helpline is very helpful."

They are very helpful when it comes to helping you pay tax - ClearAsDay your DH would end up with a lot more of his hard-earned turnover in his pocket instead of HM Treasury's if he took his income as dividend.

MrAnchovy, don't worry he does take his dividends too but also takes a basic monthly income to ensure he can use all his tax free sum.

"[he] takes a basic monthly income to ensure he can use all his tax free sum."

Oh that's OK then - there wouldn't normally be any PAYE tax or NICs due to HMRC at this level of salary so I made an incorrect assumption.

I work for a main contractor and we deduct CIS from subcontractors

Personally I think they are on dodgy ground and your dh could be deemed an employee. They shouldn't be providing payslips, your dh should be invoicing them for work completed.

Every CIS return that a main contractor submits each month we have to declare that we have checked the employment status of all sub contractors and thatvtheyvare genuinely self employed (HMRC publish a checklist which includes things like being able to refuse work/send someone else, financial risk, providing own tools etc)

No worries MrAnchovy, was trying to keep my explanation simple as I wasn't sure if IE's DH was Ltd Co or not
By using this approach MrClear gets a "CIS deductions suffered" refund after P35 submission. Anyways, appreciate the tip regardless as he's always keeping eye out on ways to be most tax effecient

"Personally I think they are on dodgy ground and your dh could be deemed an employee."

This is true but is an entirely different matter and it is unlikely to be in the OP's interest to persue it.