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Hi Luise
Your client will have to do the ‘test’ to see whether he needs to employ the 4 guys (under a PAYE Scheme) or whether he can class them as sub-contractors and deduct CIS tax from them in the same way that his customers deduct it from him. For example, if the guys are using their own tools, can send anyone from the business to do the work, and is not working 100% of the time for your client, it’s likely that they could be used by your client as a sub contractor. If however, your client has complete control over when the guys work and they use tools that your client has provided – then it’s possible he may need to employ them under a PAYE scheme and then deduct PAYE Tax and National Insurance instead.
If your client was a Ltd company – and he ended up employing the 4 guys, then he would be able to offset the CIS suffered (CIS withheld by his customers) against the PAYE Tax & NI that he would have to pass onto HMRC each month. For example, if he had deducted £1,500 in Tax & NI from his employees – and his customers had withheld £500 CIS from his invoice – then he would only need to pay HMRC £1,000.
If your client was a Ltd company and engaged the 4 guys as sub contractors – but didn’t have any ‘employees’ – I don’t believe he can offset the CIS suffered from his customer invoices on a monthly basis. Hopefully, if someone else knows that you can, they will let us know………
As a Sole Trader, monthly in-year offset is not allowed at all. The CIS suffered has to be entered on your clients self assessment at the end of the year and is offset against Tax and NI due personally by your clients profits.
As a sole trader – if he employs your 4 guys, he will have to pay any PAYE Tax and NI over to HMRC monthly (or Quarterly, depending on the amount). If he engages them as sub contractors (he will have to be registered as a Contractor and a Sub Contractor) then any CIS tax that he withholds from them, he will have to pass on monthly to HMRC.
I hope this makes it a bit clearer for you
Carol
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