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Dealing with non compliance with CIS

My client has not made deductions on SC payments, is it OK to just disallow the expenditure?

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My client. sole trader, is late with his 2018 tax return and because he was ill he hired people to help him with his work.  The hires should have come under CIS but no CIS returns were made and no tax was deducted.  Is there anything wrong with treating these payments as non business (i.e. personal costs), therefore increasing his profit and increasing his personal tax.  In this way he would avoid the HMRC penalties for non submission of CIS returns and would ensure that all the tax due was actually paid. 

Thanks for your thoughts on this

Replies (10)

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RLI
By lionofludesch
16th Oct 2019 16:32

Yes, there is.

The tax and NI that the subcontractors would've paid is likely to be more than the 20% your non-compliant client should've deducted.

And, in any case, this isn't an acceptable way to avoid penalties.

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By JoF
16th Oct 2019 16:40

Ethics?!!

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Replying to JoF:
By ireallyshouldknowthisbut
16th Oct 2019 17:47

Just norf of London, sauf of Suffolk innit.

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By Roland195
16th Oct 2019 16:46

There will be no penalties for non-submission of CIS returns if he did not register as a contractor in the first place.

I would be more inclined to post the payments to subcontractor payments as normal along with an ahem, health warning and instructions/assistance with properly returning such payments in the future.

If HMRC enquire, then it will be a damage limitation exercise - some accountants have some success in mitigating tax assessments/penalties by attempting to prove the individuals properly returned the total on their own returns.

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By Wanderer
17th Oct 2019 04:48

Bakers Bookkeeping wrote:

My client. sole trader, is late with his 2018 tax return and because he was ill he hired people to help him with his work.  The hires should have come under CIS but no CIS returns were made and no tax was deducted.  Is there anything wrong with treating these payments as non business (i.e. personal costs), therefore increasing his profit and increasing his personal tax.  In this way he would avoid the HMRC penalties for non submission of CIS returns and would ensure that all the tax due was actually paid. 

Thanks for your thoughts on this

Thoughts??
Mine are this would be an attempt to cover up a failure and non compliance with regulations by misrepresenting the client's profits.
Both are wrong and the latter doesn't make the former acceptable.

Are you a bookkeeper or an accountant? Don't want to be too harsh however if the former then you probably need to follow the advice intimated on that link that there is a limit on the advice that bookkeepers should provide.

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Replying to Wanderer:
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By Bakers Bookkeeping
17th Oct 2019 20:27

Thanks for this, yes that is me and yes I am a bookkeeper which is why I thought it would be good to get some accountants opinions on this. All the responses have been extremely helpful - I certainly do not wish to mis-represent the accounts and/or the clients profits.

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Replying to Bakers Bookkeeping:
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By Wanderer
17th Oct 2019 20:52

Hats off to you for coming back and recognising the points being made.

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By JDBENJAMIN
17th Oct 2019 13:37

They were subcontractor payments, and therefore should be included in the accounts. Leaving them off would be false accounting. I'm surprised you actually need to ask this. Failure to apply CIS is a separate issue entirely.

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RLI
By lionofludesch
17th Oct 2019 14:03

If you want to mitigate the penalties, concentrate on his illness.

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By Bakers Bookkeeping
17th Oct 2019 20:41

Dear all,

Thanks a lot for all your replies and very clear unanimous advice that this would certainly be the wrong approach. Also helpful suggestions to pursue.

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