Am I a Subcontractor?

Question

I run a limited company and deliver electrical services. I recently did some work for another company and they deducted 20% tax! Is that correct? I’ve never had that happen before.

Answer

The Construction Industry Scheme (CIS) is a set of special rules for handling payments for construction work that contractors make to subcontractors. The scheme covers all construction work carried out in the UK, as well as some other related work. If your business is involved with construction operations then it might operate as a contractor or as a subcontractor- or as both.

Under the rules of CIS you’re a subcontractor if you agree to do construction work for a contractor. Subcontractors can be self-employed individuals, any type of business (such as sole traders, partnerships or limited companies), or other bodies and organisations.

It doesn’t matter how you complete the work – you could do it yourself, get your employees to do it, use your own subcontractors or make some other arrangement. And it also doesn’t matter if you don’t normally think of yourself as a subcontractor; you could still be treated as one under CIS.

So unfortunately, your customer (the contractor) may well have been correct to deduct tax from your invoice.

If you’d like to find about more about the Construction Industry Scheme and how it may be possible to receive your payments gross, please do not hesitate to contact us.

Nigel Lomax explains how the VAT Flat Rate scheme operates

The Flat Rate VAT scheme (FRS) is available to all small businesses. The FRS differs from standard VAT accounting as you pay a percentage of turnover rather than paying VAT on the difference between sales and purchases. So, while you continue to charge clients the standard 20% VAT rate, you can potentially give a smaller percentage to HM Revenue and Customs.

The FRS helps to simplify VAT calculations and record keeping. This is particularly helpful to smaller organisations that may not have the time to conduct their accounting in the traditional way. This is important bearing in mind the increasingly severe penalties that can be charged for errors. It shortens the process, removing the need to keep a record of VAT charged for each individual sale or that paid on purchases. However, you do still need to show a 20% VAT amount on each sales invoice.

It might also save you money. Example:

Standard VAT Calculation

Total Billings £50,000
Output VAT 20% £10,000
Total invoiced £60,000
VAT reclaimed through purchases £750 (this figure is arrived at by adding up the VAT on all your business costs)
Total payable to HMRC £9,250

With this scheme, you are acting as an unpaid tax-collector on the VAT generated by you business.

Flat Rate Scheme Calculation

Total Billings £50,000
Output VAT 20% £10,000
Total invoiced £60,000
Total payable to HMRC at 14.5% of total invoiced £8,700

In addition, while you are in your first year of vat registration you can benefit from a 1% reduction to your FRS rate.

If you make use of the scheme, you cannot reclaim VAT on purchases, except in certain circumstances. As a result, the FRS works best for people who have few expenses compared to their fee income. VAT on expenses can only be recovered if they are capital items costing £2,000 or more or if the assets are still within the business on the date of VAT registration.

I must credit http://www.contractoruk.com for their article which contains further information for IT Contractors

Please contact us if you need further advice. The FRS scheme means that it can make sense to voluntarily register to be VAT-Registered where your customers are VAT-registered.

Nigel Lomax from TaxAssist Accountants shares a useful client guide that explains the timing of income tax payments

Here in Shrewsbury, my team and I are often asked about income tax payments are calculated and, particularly, payments on account.

The link below will take you to our guide on this subject.

Client guide to timing of self-assessment tax payments

I hope you find this useful. Please feel free to share it with your friends (if they are interested in tax !)

The Pros and Cons of Going Limited

A high income tax bill for partners and sole traders is often the prompt to look at the pros and cons of becoming a Limited Company. The “bullet points” are shown here:
Limited_Company_Pros_and_Cons_Flyer

Please do not hesitate to contact us for more information and a calculation of the potential tax savings

Latest information on HMRC enquiries

TaxWise, who provide us with our fee protection insurance, have shared with me their latest statistics on HMRC enquiries. It makes dramatic reading. In the last 5 years, HMRC enquiries have increased 5 fold. You can see the information by clicking on the link below:

Claims by Month to TaxWise (July 2014)

Our clients are protected by the TaxWise scheme, which means that we will not charge our clients for time spent on HMRC enquiries (subject to some conditions).

If you are not a client, I strongly recommend that you consider getting some protection.

Help your business flourish with Growth Vouchers

CoinsPlant

At the end of January 2014, the government launched a £30 million research programme to help small businesses access professional advice.

The business support is delivered in the form of allocated Growth Vouchers, enabling businesses to receive a 50% subsidy towards the cost of obtaining advice on 5 key topics that help businesses to grow.

What are Growth Vouchers?

Subject to certain conditions, small businesses that participate in this programme will be allocated vouchers to spend on strategic advice from suppliers in the private sector, matched with their own funds, on one of 5 categories of support.

The 5 Categories of Support

Growth Vouchers can be used to obtain strategic advice in any of the following categories:

  1. Managing cashflow, late payments and negotiating finance (see below for further information)
  2. Developing skills and taking on staff
  3. Improving Leadership and Management
  4. Marketing, attracting and keeping customers
  5. Making the most of digital technology

Business eligibility

Your business must:

  • have 49 employees or less (including any employees of companies that own a stake in your business)
  • be registered in England
  • have been trading for at least one year
  • not have paid for business advice in the last 3 years*
  • be independent (i.e. no more than 25% is owned by other businesses or organisations)

* If your business has received “day-to-day” advice from an accountant, bookkeeper, and solicitor or as a member of a business organisation on completing your annual business accounts, or understanding the legal/ regulatory requirements of running your business, you should still be eligible for the Programme.

What is the value of a Voucher?

The Government will match your spend up to a maximum value of £2,000. This means you can spend as much or as little as you want on the advice but the maximum contribution from the Government will be £2,000. For example:

  • You spend £1,200 on support: £600 from you and £600 matched from government
  • You spend £4,000 on support: £2,000 from you and £2,000 from government
  • You spend £5,500 on support: £3,500 from you and £2,000 from government

On the Enterprise Nation marketplace you will find suppliers who meet the minimum standards required to be suppliers as part of the Growth Vouchers programme and with whom you can spend your vouchers. As the small business owner, you pay the supplier and then claim back up to £2,000 from Government.

How can I get a Growth Voucher?

You may apply for Growth Vouchers on a government website. If you meet the criteria, you will then be guided through a diagnostic filter which will help you assess your business needs. The process will be done either online or through a face-to-face meeting with an adviser. After this, you will be notified if you have received a voucher.

Apply for Growth Vouchers now

With a Voucher in hand, what do I do next?

You visit the Enterprise Nation Marketplace and find a supplier/ advisor with whom you can spend your voucher. Suppliers are members of Founding Trade & Professional Bodies so the quality of advice they offer is assured.

Find a Growth Voucher adviser

Could I spend my Vouchers with TaxAssist Accountants?

You may indeed spend your Growth Vouchers with your local TaxAssist Accountant. Due to the terms and conditions of the programme, the vouchers couldn’t cover the day-to-day services that we would provide you with such as preparing your accounts and tax return. However, they could very well cover more strategic work, such as:

  • A financial healthcheck – consultancy to review the financial health of your business and developing a strategy for growth
  • Financial planning, creditworthiness and investment-readiness
  • Cashflow and credit management
  • Basic business planning for debt finance
  • Enhanced business planning and evaluation for equity finance
  • Strategic management accounting

Due to the nature of the advice given, activities funded by the scheme should result in securing long-term change in the business, its operations and its capabilities.

The Shrewsbury Accountants, TaxAssist in Sundorne, give an insight into HMRC Tax Investigations

Most* TaxAssist Accountants’ clients in Shrewsbury have the assurance of knowing that if HMRC launch an investigation into their tax affairs, we will deal with HMRC on their behalf and that we will not charge them for our time. We promote this as TaxProtect and it is currently provided by Taxwise.

The article below is written by Taxwise and gives a very good explanation.

If you have any questions please contact us rather than the telephone number on the document.

TaxWise article on HMRC Investigations

*Subject to paying a minimum annual accountancy fee.