Client has missed CIS Contractor Obligations

Client has missed CIS Contractor Obligations

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A client who's only been trading for about 3 years has unknowingly paid a COMBINED total of about £2000 since July 2012 to half a dozen subcontractor electrician & labourers without applying the CIS scheme - he says he hadn't even heard of the scheme! Is the only way to deal with this to register as a contractor retrospectively and ask the subbies to refund the 30% tax & declare the payments & 30% tax on the returns for 5th Aug, 5th Sept & 5th Oct, then verify each one for future returns. Then wait for the penalties & try an appeal???? Or is there a better way? He may not even use subcontractors again.

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Euan's picture
By Euan MacLennan
12th Nov 2012 10:06

Are you sure?

First, check that your client is a CIS contractor and that the work done by the electricians and labourers were construction operations.

Assuming that CIS applies, what are you asking?  Can I fudge it?  Will HMRC notice if he doesn't register as a contractor?  Is it my fault because "he says he hadn't even heard of the scheme", when I should have advised him if he was in that line of business?

The client must register as a CIS contractor.  You can then verify the sub-contractors.  They may be 20% or even, gross, sub-contractors, which would reduce your client's exposure, but you seem to suggest that they may not have registered as CIS sub-contractors.  If so, could they be treated as employees?

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By kevinread
12th Nov 2012 10:27

Thanks Euan,

The works are definitely construction operations within the scope of CIS. He came to me last year & I did ask him whether he intended to use subcontractors in future & he said he did not intend to. I did discuss the CIS scheme with him but he says he didn't realise the works fell within the scheme as it was for a hotel.

My question is not whether he should register now but how to deal with the payments already made to subcontractors. 

Should I tell him to declare them as they should have been at the time in the correct tax months & ask them each to refund the 30% (it may prove hard to get them to do this) & pay this over to HMRC per the returns?

 

 

 

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By edward33
12th Nov 2012 14:55

Hotel?

Kevin what does your Client actually do?Is he a builder? Why have you mentioned a Hotel?Not all building works are within the CIS rules.

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By kevinread
12th Nov 2012 15:02

Hi Edward, my client is a carpenter & he carried out the works at a hotel.

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By Moonbeam
12th Nov 2012 19:10

What I did for a client

Client had not deducted CIS from some subbies (but they did from others). They were hopelessly confused as so many clients are. When I took them on I spotted that CIS had not been paid over for a number of people. Client gave me a spreadsheet of all the subbies where CIS had not been deducted over several years. I tarted this up to show what CIS should have been deducted and added subbies' NI numbers.

With client's consent I wrote to HMRC, explaining that these subbies were not included on the CIS monthly schedules. HMRC then checked each subbie. All except one were registered on CIS but one wasn't - so that meant 30% deduction for him. HMRC then checked subbies' tax returns going back previous years and agreed not to charge double tax in effect. They did charge unpaid CIS for the year 2012 as the tax returns would not all have been received.

They didn't charge us penalties, but did charge the wrong amount of interest, and I had to rework their interest schedules accordingly and ask them to redo.

I have found in this and other late declarations that if you are as helpful, detailed and honest as possible you can avoid penalties. It does of course depend on the client and the quality of their information.

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Replying to Tim Vane:
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By kevinread
12th Nov 2012 20:36

thanks Moonbeam

that's very helpful, thank you.

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