Employment Status

Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.

Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.

Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.

The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]

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Quick Guide to the Construction Industry Scheme CIS

Quick Guide to the Construction Industry Scheme CIS

Tax Model

The Construction Industry Scheme (CIS) is a tax system, and applies to those involved in conventional construction work. It is specifically applied to contractors and subcontractors. It can also apply to businesses that regularly spend large amounts on construction even though their main business may not actually be in construction.

CIS is a bespoke set of HMRC rules that govern what tax is owed when contractors pay subcontractors for construction work.

Registered

Any company that does business in the construction industry, as a contractor paying subcontractors, should be registered for the CIS scheme.

Any subcontractor, working in construction and paid by a contractor, should be registered as CIS for tax purposes.

Contractors

What is a ‘contractor'? If, like many in the construction industry, your company contracts construction work out to subcontractors then you are a ‘contractor'. A company or business that is a ‘contractor' needs to register with HMRC as a ‘contractor'.

A contractor should do two things:

  1. Register with HMRC, by phone or online.
  2. Verify your subcontractors, to find out how to pay them.

Subcontractors

What is a 'subcontractor'? A ‘subcontractor' is a person, normally self-employed, who works in the following way:

  • Is in the construction industry
  • Has a contract with a contractor
  • Is paid by the contractor for the work done

If you tick these boxes it is highly probable that your work, and tax, will be covered by CIS.

Self Employed

 Subcontractors should register with HMRC as self employed and operating under the Construction Industry Scheme. The information you need to give HMRC will depend whether you are a sole trader, partnership or company. HMRC will then give you a Unique Taxpayer Reference (UTR).

 Subcontractors will need to tell the contractor that they are CIS registered. This enables the contractor to verify you with HMRC and know what tax to take off your gross pay; this will be one of three amounts:

  1. 0%, Gross receipt
  2. 20% Standard Deduction
  3. 30% Higher Rate Deduction

Deductions

The deductions made during the tax year are effectively payments of tax on account and in line with all self employed workers CIS subcontractors must complete a Self Assessment at the end of each tax year.

Many sub contractors have their own accountants to help with this but umbrella companies can also offer advice on completing the self-assessment.

In most standard rated cases the completion of the self-assessment will lead to a tax rebate so it is important to complete the return soon after the fiscal year end.

Upand Down

Umbrella Companies are great for the subcontractor who hates paperwork and don't like endless administration. If you're a subcontractor it's probably worth spending a few minutes looking into this option.

The downside is you'll have a wasted call; the upside is you can get on with your job without having to worry about HMRC, paperwork or tax.

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HMRC Compliance

It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.

Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].

Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.