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How Do You Deal With Slippery Contractors?

Construction Industry Tax Deduction Scheme - Prospective Clients Who Just Can't Be Bothered With it.

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I would be interested to have comments from readers who have dealings with this problem with some of their construction industry clients.

Maybe you are approached by a prospective new contractor/subcontractor. You know what it's like. They bring you their books and they're a few years in arrears. They have become accustomed to paying all their subcontractors gross with impunity. You mention the prospective £100k HMRC penalties for failure to deduct tax and all you get is "Oh, I don't do all that stuff" (i.e. get involved in all that red tape).

Or, "I'm too small for the taxman to worry about",

Or, "I only paid them a few hundred quid for installing a gas fire",

Or, "If I had to do all that, I'd have to give up",

Or, "Well, everyone else I know is doing it" (implying that you are some sort of "weird" accountant who doesn't act in the client's best interests),

Or, "How come me best mate's getting away with it",

Or, "Don't you worry, I'll deal with the taxman when he comes knocking" (I.e. "with me Irish blarney I could talk the hind legs off a donkey" [taxman is not a donkey, contrary to popular belief]).

I can tell that some of these clients just really do not want to get involved. All they want to do is build, get paid and supp ale.

So, have any of your client's found legitimate ways around the subcontractor scheme, like the customer splitting the bill between all of the subcontractors (needs customer cooperation and many would refuse to play ball - "who do I sue if it goes wrong?".

My slight concern is the client moving on to a new accountant who "does a good job for all me mates". Well, what is he actually doing that I don't know about.

I can tell from the faces of one or two of my landscape gardners that they think I'm an idiot when I mention their building activities and the need to deduct tax and be registered as a contractor in the construction industry tax scheme.

One client keeps on threatening to pack it all in because he is too ill to do heavy work, but he has a great business and needs workers but refuses to commit to employ or be registered as a contractor. He just wants to pay them gross and then forget about it. I have warned him but he just won't be told. I think he is about to jump ship to a "more accommodating" accountant.

The great problem is that when you disclose pay costs on the client's tax return you are effectively telling HMRC that you are paying tons of wages and other staff costs without deducting PAYE. And by putting subbies costs in with cost of goods bought etc. you are just masking what is really going on with all the problems that could bring.

Or, do I just attract the wrong sort of builder?

 

Replies

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24th Jan 2019 20:16

I don’t find it that difficult, really.

I lay out the way it works, the client makes a choice. No tangled webs to avoid responsibilities.

If the client wants to be a bit dodgy they will have to meet with another accountant who will take them through the same process and again until they find one who isn’t so bothered. That’s fine. I lose a fee but save a lot of hassle in the long run.

There will be honest ones who may struggle, in which case there is an opportunity to manage things for them. As you probably know Moneysoft looks after CIS simply and efficiently.

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to andy.partridge
24th Jan 2019 20:22

Nice response!

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By DJKL
24th Jan 2019 20:25

Depends , of course, what your gardeners are doing, types of activity etc etc.

Personally I would run a mile from most contractors, from experience sorting out the chaos always consumes more time than justified by the fees.

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to DJKL
24th Jan 2019 20:43

Yep. I know exactly where you're coming from. I used to think that landscape gardener = gardener.
But in many cases I have dealt with
landscape gardener = builder.
And landscape gardener (sometimes) = gardener + builder.
So, in summary, the formula to remember is:
LANDSCAPE GARDENER + BUILDER = CHAOS!

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By DJKL
to penelope pitstop
24th Jan 2019 20:57

You also get into the interesting questions re what is construction activity and what is not.

Say you have a block of flats you own, you have had them ten years, the hedge dies back and the masonry planting bed/paths etc are in poor repair- say frost damage.

Your landscape gardeners come in, remove all the dead hedge, rebuild and sort the brick planting beds, cracked paving slabs etc, and replants new hedge- is that a construction activity ?

We got a letter out of HMRC confirming that rebuilding existing stuff re our properties (In effect repairs)was not a construction activity- my argument being if they thought it was re us I wanted every BTL landlord in the UK registered as a contractor- we do not spend over threshold but because we had about £850k rental income via that business they insisted we were registered as a contractor, in my opinion incorrectly.

Imho not everything a landscape gardener does for entities registered as contractors is construction activity.

Imho same sort of thing applies re plumbers replacing central heating boilers.

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to DJKL
24th Jan 2019 21:09

Good job all landscape gardeners are members of MENSA?

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By frankfx
24th Jan 2019 23:08

I learned the lessons years ago.

Walk away.

You know it makes sense

Nordic poles will speed your journey and put distance between you and their problem, which could soon escalate to your problem.

Invest time attracting the best sort of builder , they exist.... not least on Quick Books marketing !

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to frankfx
24th Jan 2019 23:28

Sound advice.
But can anyone tell me this?
The accountants who deal with dodgy builders who can't be bothered with the subcontractor tax deduction scheme, where do they show/hide the gross subbie payments on their tax returns.

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By DJKL
to penelope pitstop
25th Jan 2019 01:29

Well the only items likely big enough are cost of sales or for the more adventurous just net from the sales.

The latter does have the issue that the accounts bear no relationship to the vat returns but hey ho,maybe they use them to reduce the vat declared in the first place.

Lets face it, once over that side of the line, in the words of Cole Porter, "Anything Goes"

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to DJKL
25th Jan 2019 01:33

Never thought of netting the sales. Crafty!

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to penelope pitstop
25th Jan 2019 06:07

And you wonder why MTD is looming.

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to penelope pitstop
25th Jan 2019 11:54

Based on some new clients who have come to me, I suspect the "accountants" who are not highlighting the need to do CIS properly are poorly trained or unqualified. A match made in heaven for these sorts of clients!

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25th Jan 2019 09:06

This was a big(ish) problem for me some years ago.

The whole attitude of people in the construction industry just didn't fit with my own view of "doing it properly". So eventually I let these clients find accountants whose attitude matched their own.

Presumably they are all very happy together.

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to TaxTeddy
25th Jan 2019 09:23

............sharing the same prison cell together!

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By DJKL
to penelope pitstop
25th Jan 2019 10:15

Not a problem, they will have the skillset to remove the wall to get out.

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25th Jan 2019 09:43

Speaking to a few trades people in my local (one of whomw have asked me to act but I have refused) they tend to use "accountants" who are really just bookkeepers who do a bit if tax on the side. Ie these are people who I don't know, don't advertise locally, and seem to file using HMRC's software and the client log ins.

I get the impression there 'accountants' are just stuffing numbers on forms for £100 extra cash in Jan.

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to ireallyshouldknowthisbut
25th Jan 2019 11:04

I think you are spot in there!

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25th Jan 2019 10:36

What, pray tell, is wrong with 'supping ale'?

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to memyself-eye
25th Jan 2019 11:03

Nowt. It's the evading tax that's not so clever!

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25th Jan 2019 11:13

You can try telling them that the penalties are nothing compared with having to pay over the 30% on what they have paid to the subbies when they get caught. Usually the subbies have long gone or won't share the UTR's or NI to check for double taxation. One of my clients found this out when he naively dipped his toe into subcontracting one year and didn't bother to mention it to me until he brought his accounts in. He will probably have to sell his home to pay the 30% and penalties.

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25th Jan 2019 11:23

I agree with the above comments. Time to review your client list! There are some who operate in the construction industry who are prepared to be legit but it's a minority. If you do want to have clients in that industry, just be prepared to turn most away.

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