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• # 81161
• Fri 23 Mar 2012 08:41 PM

Hi,

I am completing the books to trial balance for a small limited company.  The client fits gas piping.  He only works for one contract provider and has done for a number of years.  He is paid weekly and tax at 20% is deducted at source.  From the net amount he has to pay one person who works with him.  He is being taxed for the full amount for the earnings of both him and his mate.

He has asked me to find out is there any way he can arrange to be paid without the tax being deducted at source.  He will then get his mate to invoice him as a soletrader so he can pay him directly and it his his mates own responsibilty for personal tax.  He has previously been advised to take his mate as a fellow director but is reluctant to do this.

Any help o guidance would be appreciated.

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• # 81162
• Fri 23 Mar 2012 08:51 PM

This seems to CIS problem.

Is the mate an employee of the Company?

Is there are a reason why the company has not applied for gross payment under the CIS system.

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• # 81173
• Sat 24 Mar 2012 08:47 AM

Hi Adrian,

Thank you for your pompt response.  To give you a backround, Brian who owns the limited company was originaly a sole trader who was advised by Avecco whom he contracts for would need to be a Ltd company to continue contracting work for them.  The Ltd was formed five years ago.  His mate who now now works with him gets 40% of the earnings and Brian 60%.  As the tax is deducted at source Brian is apying the full tax before paying his mate.

The options he has looked at are as follows:

1.  Taking his mate on as an employee - doesnt want to do this as earnings fluctuate, hoiliday pay etc.
2.  Forming a new Ltd Company with his mate

How does CIS work?  Would it benefit him if he did this and his made sub contracted for him?

Many thanks.

Lee

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• # 81175
• Sat 24 Mar 2012 02:51 PM

I am confused as to why Brian is not operating the CIS regulations on his mate.

If the work falls withing the scope of the Construction Industry scheme it needs to be operated both on Brian by the contractor and by Brian on his mate.

You state the mate is not an employee at present therefore he must be self employed and therefore he should be dealt with the same in effect as the limited company.

Soemthing is not correct here and you really should refer this to the accountant for the limited company.

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• # 81197
• Mon 26 Mar 2012 07:35 AM

I agree with Adrian that you should refer to the accountant if you're not familiar with CIS. Whether or not Brian operates under the CIS regulations isn't a choice - he's doing construction-related work, so he needs to be registered for CIS.

It sounds like the ltd company might already be registered as a subcontractor for CIS, since Avecco are deducting tax at source. Brian can apply for gross payment status for this, but there are various criteria the ltd company has to meet in order to do that - see http://www.hmrc.gov.uk/cis/subcontractors/advice-pay.htm#2

Since Brian is also employing someone to do construction-related work, he must also register as a contractor, and contact HMRC to verify any subcontractors he takes on - he should have done this before employing his mate. HMRC would then have told him the rate at which he has to deduct tax. It's not the case that Brian can choose to make his mate entirely responsible for his own tax (unless HMRC tell him to pay his mate gross).

Another issue Brian might need to consider is that he might not be able to choose his mate's employment status - if this is the only work that his mate does, he is likely to be classed as an employee rather than a subcontractor, and therefore payable under PAYE rather than CIS.

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• # 81202
• Mon 26 Mar 2012 08:22 AM

I agree 100% with everything that Kate says.

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