What is CIS?
The Construction Industry Scheme was introduced in 1971 by Her Majesty’s Revenue and Customs (HMRC) and continues to this day.
How do I know if the rules affect me?
If you are working in the construction industry as a company engaging the services of subcontractors, or you are a subcontractor yourself, it is likely CIS will affect you in some way.
As a contractor you will need to make sure you deal with your subcontractors in the correct manner and prepare a personal tax return to let HMRC know about your income and expenses for the year.
Are the rules complicated?
There are many different rules that a CIS Contractor and Subcontractor needs to abide by. HMRC’s guidance in full can be found on their official website but it can be complex, which is why we are here to help.
We will make sure you understand everything you need to know about CIS, by keeping things simple and sticking to the relevant facts.
How will I be determined to be a CIS Contractor or Subcontractor?
You will be considered a CIS Contractor if you run a business which:
You will be considered a CIS Subcontractor if:
You agree to do construction work for a contractor. It doesn’t matter how you actually carry out the work – you could do it yourself, get your employees to do it, use your own subcontractors or make some other arrangement.
If I am deemed as a CIS Contractor what do I need to do?
You will need to register as a CIS Contractor with HMRC. They will ask for information about your business, including:
Whilst the process can be daunting, we will take you through it step-by-step so that HMRC’s requirements are met.
If I am deemed as a CIS Subcontractor what do I need to do?
You need to let HMRC know before you start to work for a contractor. If you don’t, your contractor will be required to deduct 30% from your pay before you receive it. If you do register as a CIS Subcontractor, they will only need to deduct 20% from your pay before you receive it.
How much do you charge?
Our CIS Contractor Package costs £30 plus VAT per month. Full details are available here.
Experience tells us that you might not CIS Contract for an entire accounting period and we offer a 50% reduction in fees where a CIS Contractor has not worked for more than two months. This would continue until you were working again.
Do I need to complete a personal tax return?
If you are working as a self-employed CIS Subcontractor the answer is yes.
You will first need to register as a self-employed person with HMRC before completing a personal tax return each year. The tax year runs from 6th April to 5th April each year and your return is due with HMRC no later than the following 31st January.
We can register your self-employed status with HMRC and complete your return based on the information you provide.
Will I get a tax refund?
This depends on many factors such as your total income (not just that from CIS), expenses and tax deductions made by your contractor. Typically if you have been working as a CIS subcontractor for the full tax year a refund of over £1,000 is to be expected, but this will vary based on your specific circumstances.
What is a limited company?
A limited company is a business entity that is formed for the benefit of its members. Typically the members are the shareholders of the company and more often than not also the directors.
The directors are responsible for the proper running of the company. A limited company needs at least one director. It is no longer necessary to have a company secretary.
Benefits of a limited company
Trading through a limited company can help to show credibility and substance to potential customers. Some end clients will only engage with you if you trade through your own limited company.
How much do you charge?
We set-up your limited company as part of our Limited Company Accounts package which costs £95 plus VAT per month.
What are the advantages of a Limited Company over an umbrella company or self-employment?
A limited company means that you are running your own business and self-employed.
When operating under an umbrella company you are employed and paid based on your contribution. Umbrella companies employ potentially hundreds of contractors, hence the term, as you will be working under the same “umbrella” as many others.
Normally this would be on an hourly rate based on work done.
The umbrella company also charge you a weekly fee which could be £30 plus VAT per week or a percentage of your income.
Therefore an umbrella company, as a simpler solution, is typically most suitable for low value or short term contracts. If your contract value is more than £25,000 it is unlikely there will be any tax advantage over a limited company, even after taking into account set-up and ongoing costs.
The major difference for contractors is the tax position. Although every circumstance is different, typically a limited company is the most tax efficient, followed by self-employment and then an umbrella company.
If an umbrella company would be most appropriate we will let you know and make an introduction to one of our recommended partners.
Do you have entry or exit fees?
We don’t believe in charging clients for an administration change in your business and therefore we don’t charge any entry or exit fees. You are free to join or leave our services at any time during your accounting year, without any additional charge being made.
I don’t need the full accounts service but I do need some help – can I still work with you?
Yes!While the best value for money can be found with our full package, individual services can be arranged as needed.
This might include preparing prior period accounts or bookkeeping if you were joining us part way through an accounting period.
If this applies please contact us at 0113 246 1007 or by clicking here for further details and to request a detailed fee quote.
IR35 is a term that most contractors will have come across at some time. Whilst the vast scope of the legislation can be overwhelming, we can provide expert advice on this area. This will ensure that you not only know what IR35 is, but how it affects you and your business.
What is IR35?
IR35 was introduced by HMRC to close a loophole that allowed an employee to leave work on a Friday and return the next Monday as a contractor – thus paying less tax even though their role hadn’t actually changed.
What are the key indicators of IR35?
Right of Substitution – Are you able to substitute yourself for another worker or do you, and you alone, have to carry out the work?
Mutuality of Obligation – Do you have an obligation to carry out the work or are you free to refuse or turn down work? Does your client have the right to refuse you work on a particular contract?
Direction and Control – Are you directed and/or controlled by the client or are you free to carry out the work in the manner you choose?
Are there other factors that need to be considered?
There are several other factors that need to be considered in addition to the above, including:
Essentially these are tests of being in ‘business on your own account’. If you were acting in business on your own account it is more likely that your contract would be seen to be ‘outside’ of IR35.:
What is HMRC’s business entity test?
The business entity test was introduced in 2012 as a way of assessing your risk exposure to IR35.
Based on a number of questions, a point based system assesses your risk as Low, Medium or High.
HMRC may then choose to review your contract, and affairs, further dependent upon the risk that your contract would be ‘inside’ of IR35.
What if my contract is found to be ‘inside of IR35’?
If your contract is found to be inside of IR35 this will mean than your tax bill is highly likely to be higher than if your contract were found to be outside of IR35.
You will only be able to claim a limited amount of expenses, before needing to take the remainder as a salary.
As your salary will be subject to tax, employees and employers National Insurance, which your limited company would need to pay, this will reduce the net pay available to you personally.
What if my contract is found to be ‘outside of IR35’?
If your contract is found to be outside of IR35, this will typically mean that your total tax bill will be less than a person operating inside of IR35, as a sole trader or through an umbrella company.
You would normally take your personal income by way of a split between salary and dividends.
The exact calculations will always be based upon your own personal circumstances, hence it is best to talk to us first before taking your first salary or dividend payment from the company.
For a one-off fee of £199 (+ VAT) we will review your contract and advise of your IR35 status, providing reasoning for our opinion based on relevant case law and scoring based on HMRC’s business entity test.
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Got a question? Need some advice or support? We are ready and waiting to help you find the solutions and answers. Ask your question here and we'll get straight back to you or call Darren on 0113 246 1007.