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CIS - am I missing something

Please excuse the back of a fag packet calculation but it should suffice.

I have a client in the CIS who has earned 40k and had 8k deducted at source. He has roughly 5k expenses for the year

Relevent profit therefore 35k less PA 6.5k = 28.5k. Tax @ 20% = 5.7k

Class 4 - 30k - 5.7k x 8% = 2k

Therefore total liability roughly 8k and 8k deducted at source therefore nothing due

The client is convinced he is due something back (as everyone he works with is...) but I cannot see how. Have I missed something fundamental or are his colleagues maybe being over zealous with their expenses? Any ideas would be happily received

Cheers

Nigel

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03rd Sep 2010 12:53

Nope

He just earns too much.

Tell him that he needs to understand that the actual tax rate is 28% if you include the NIC and they only deduct 20%.

Therefore eventually the refund arising from his PA and the expenses won't cover the NIC he has to pay.

His colleague probably earn less than him which is why they are getting a refund.

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03rd Sep 2010 13:01

Agree with you

Your calculations seem fine.  It may be that he earns more than his workmates - in which case he is paying tax @ 28%, but only having 20% stopped - or that his workmates are claiming more expenses.

I have had this in the past, very nasty subbie who had received refunds through his previous accountant.  With me, he had earnt more, which, in line with my point above, wiped out his refund.  Extra £10k, CIS tax deducted £2,000, tax due on extra profit £2,800, £800 bigger tax liability which wiped out refund.  Threatened me if I didn't send back his CIS forms.  He didn't need his expense invoices as there weren't any!  I think the lack of refund knackered his Christmas!

Now give subbies a wide berth as they are more trouble than they are worth.

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03rd Sep 2010 14:27

Now give subbies a wide berth as they are more trouble than they

Wise words.

 

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03rd Sep 2010 15:20

Subbies
Now give subbies a wide berth as they are more trouble than they are worth.

Wise words.

 

Posted by Phil Rees on Fri, 03/09/2010 - 14:27

 

Send them to us.  We have no problems with subbies (with the exception of one obnoxious individual who threatened a member of staff and was very quickly dealt with - in 40 years he is still the only client I've actually thumped).

The vast majority of subbies will get a refund in the £500 - £1,500 area depending on their expenses, earnings etc. However in the case outlined by the OP it does seem that this particular subbie has earned too much. If this is going to be a regular occurance then some tax planning is needed, however, if it was a "one off" (just an exceptional year), then he would in hind sight have been well advised to buy a new van or new tools to boost his capital allowance claim for the year. Obviously the first move should be to double check his expenses to see if there is anything at all extra that can be claimed.

I would actually present him with a comparison sheet showing him his probable tax liability and refund at various levels of turnover from say £20,000pa through to £50,000 pa to demonstrate how the tax system works.

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By stiga
03rd Sep 2010 15:43

Set expectations

We always set expectations by stating a tax repayment 'MAY' be due depanding upon income, expenses and tax paid. I've seen some accountants advertise the fact that a tax repayment is always due.  We have got some subbies into the 40% tax bracket which means additional tax to pay.

Alan

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07th Sep 2010 12:27

Many thanks for your help

It's good to know I'm not going mad.

I think part of the problem was that he had a refund last year owing to the purchase of a van and although I made it clear at the time that it was a one-off, the expectation of a refund this year was probably there.

I did illustrate the liabilities/refunds at different levels, but all he was concerned with was that 'everyone' was getting refunds (it was probably only the people getting refunds that were doing the shouting though) - I think  I'll tell him to earn less next year :)

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