I have completed the accounts for a CIS subcontractor who hasn't completed a SA in the last 5 years. My calcuations currently show him owing a large bill which has solely arisen due to Class 4 Nic at 8%. Please can someone confirm that CIS contractors have to pay Class 4 as I am confused at how so many people seem to be getting rebates when I look at my numbers. Obviously this is before any penalties relating to the lack of SA submission is taken into account.
many thanks
Lisa Coulson
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Legal Justification
Section 15, SSCBA 1992.
Now if you are talking about Moral Justification for having to pay Class 4 NIC, thats a different story
Subbies Expect
My very limited experience of Subbies is that they expect refunds - they always have mates whose accountants get them refunds so what is wrong with me? - result, I do not touch them any more.
Thank you everyone!
I want to say thank you to everyone who has replied to my post. All of the comments ahve been very useful and have confirmed that I have calculated correctly. Many thanks Lisa
20% or (30%) for 2007/08 onwards....
...but questioner is talking about getting last five years returns up to date, so were are talking about rates 2006/07 backwards.
Thankfully not a moment of madness, just a misreading of the question.
CIS deduction rate
The last 2 posts state that the CIS deduction rate is 18% but surely it is 20% (or even 30%).
Am i having a moment of madness here ?
More refunds in the future
In my experience not all CIS tax deduction cases subcontractors get refunds nowadays.
The reduction in class 2 NIC and increase in class 4 NIC had a big part in this.
However, we now have two changes that could just possibly bring more subcontractors back into refunds again (2008/09 rates figures quoted) :-
(1) The deduction rate is now 18% not 20%
(2) The typical current marginal tax/NIC rate is now 28% rather than 30%
So in effect the deduction rate is now at basic rate.
The combined effect of (1) and (2) is an extra 2% of gross income paid upfront as CIS deductions and a reduction in 2% of profit in liability before deductions. Also the personal allowance increase way above inflation in 2008/09 will have it's effect in due course.
Agree with DB
Since the rate of deduction was reduced to 18%, very rarely do any of my subcontractor clients get refunds.
It is usually in two circumstances that they do
1. If they do supply their own materials, but do not split this out on there invoice, so the 18% deduction is effectively taken from their material costs aswell.
2. If their business covers a large area, and there motor expenses are high.
All other times, the end up owing money. But if you think about it, it does make sence. Say someone has a turnover of £30k, without expenses most of that will effectively be 'taxed' at 30% (22% + 8% NI), whereas the deduction would only have been 18%. You can therefore see you would need not an insignificant amount of expenses to come to a profit which would create a tax repayment.
With the decrease in the basic rate of tax, and the increase in deduction rate, I believe we will start to see more refunds again from 2008/09 onwards.
In response to your question
Firstly, yes subcontractors have to pay Class 4 NIC.
The reason behind this is simple, they are self employed and therefore must pay what other self employed individuals pay.
I cannot comment on other practitioners, but I find that many of my clients who are working with the CIS regime actually pay tax and Class 4 every year. The reason I believe many people receive rebates is due to spurious expenses, although some may be genuine.
One issue which you may need to look at is the level of profits. As with Class 1 NIC, the upper limit applies and everything above that should be at 1%.
Also, if your client has other income from employment on which he has paid Class 1, then he may be entitled to claim relief if he has paid too much NIC. I cannot think of the SI reference, but it is in the CCH and Tolleys tax books. This shows the calculation to be made to calculate any refund due.