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SOLE TRADER CIS

SOLE TRADER CIS

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I have a sole trader who for 10 years has been completing damp proofing work on 100% private house's, never for new builds or construction sites. I have just answered an Inland Revenue short enquiry regarding his sub contract payments which has been cleared up with out any problems.  He has always worked with another sole trader who then invoices him for his share of the work. The Inland Revenue now says that my client should operate as a contractor and deduct 20% cis from his colleague. Has any body else had any experience of this as if this is correct it could apply to a lot of sole traders using sub contractors.

The tax law being quoted is Section 57 (2) Finance Act 2004. I have looked at this law and can not see anything that confirms the Inspectors view. 

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Kye Burchmore profile image
By Kye Burchmore
03rd Oct 2012 13:40

That is correct

At the point your client paid another subcontractor was work within the construction industry he should have registered with HMRC as a 'contractor' under the CIS scheme (not just as a subcontractor) and verified each person he pays, make the necessary tax deduction and complete monthly CIS returns.

The only impact working on private houses would make is that your client would receive his money gross. This does not change anything in relation to your clients obligations under the CIS scheme.

It should apply to any and all sole-traders that use subcontractors (assuming they are in construction). Some people get confused by the fact they don't have CIS stopped from them if it is for private work and assume the same must apply down the chain but this is not the case.

Your client may find himself getting a few penalities pushed his way as well.

 

 

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Euan's picture
By Euan MacLennan
03rd Oct 2012 15:10

Subject to CIS

There has never been any argument about this.

It is not relevant that they are sole traders - many tradesmen are.  It is the basic rule of the CIS, set out very clearly in s.57 FA 2004, that payments for a construction operation by a contractor to a sub-contractor shall be subject to the deduction of tax.

We had this several years ago with a couple of brothers who worked together as kitchen fitters.  They took turns to invoice the homeowners and then paid 50% to the other brother.  They also thought that this was a way of avoiding VAT registration because they believed that only their invoices to homeowners were taxable supplies and so, they ignored the share received from their brother on the other half of the jobs.

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By JAMES1968
03rd Oct 2012 14:40

Possible Relief From The CIS Tax (but not the penalties).

I had a similar situation a few years ago wherein my client thought that work on private houselholds meant that CIS did not need to be operated. The above two postings are quite correct in stating that such a view is wrong.

However, the "get out" clause we were able to utilise was as being able to prove to HMRC that the sub contractors he paid had thereafter declared all their earnings and had paid their annual tax liabilities in full. In such circumstances there was no loss of revenue to HMRC and so my client could not then be compelled to pay over a second lot of (CIS) taxes on income that had already been taxed.

If this scenario is applicable to your client then exercising it may result in the actual CIS tax liability being negated, but the issue of late-filing penalties re the monthly CIS returns themselves has to be considered.

The case I referred to was several years ago, before implementation of the current CIS scheme that encompasses cumulative fines for the late submissions of monthly returns. My client was fine £100 for failure to lodged a single year-end SC35, and that was the end of the matter. If it is determined that your client should have been filing monthly returns for, let's say one year, then the effect of cumulative fines over that period alone could be quite substantial.

If you are able to sucessfully exercise the get out clause I described, then perhaps you could thereafter try arguing that as no CIS tax was ultimately payable, then no returns were due for filing, hence no fines?

 

  

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