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Welcome to this presentation on the Construction Industry Scheme for subcontractors Part 2.
I'll refer to the Construction Industry Scheme as CIS. This presentation is in two chapters
and this is the second one covering: Payment and deduction statements, Record keeping And
tax returns. Remember there's more information about CIS in the booklet CIS340 on the HMRC
website. Every time you give your contractor an invoice, or ask for a payment, your contractor
works out the deduction he has to make from your payment. Here's an example for a subcontractor
called John. John isn't VAT registered. He buys materials which the contractor pays him
for later. He charges his labour for the job at £400, and materials of £240, making a
total of £640. The contractor starts with the amount he owes John, and then has to take
away: any VAT John's charged him, materials, any fuel used, except for traveling, plant
hire and manufacturing or prefabricating materials. Here, the only amount to take away is the
cost of John's materials, so the balance before making the deduction is £400. The contractor
applies the 20% deduction to the amount that's left, to work out the amount he needs to deduct.
So £400, at 20%, gives a deduction of £80. This leaves a net amount of £320. In this
example John is paid: a net amount of £320 and the cost of his materials at £240. This
makes a total of £560. Here's a copy of a typical CIS statement that's on the HMRC website.
Contractors can use their own, so long as it has all the information shown here. The
contractor can include other information to help you understand the payment, for example,
the amount of VAT charged by you. An advantage of working as a subcontractor is that it's
the contractor's responsibility to: calculate any deduction and give you a statement every
time you are paid. Statements are normally monthly, but you could get one for each payment,
if payments are more frequent. Some contractors also give statements to their gross paid subcontractors.
Though they don't have to do this. Contractors need to give you the statement within two
weeks of the end of each tax month. The statement can be electronic so long as: you, and the
contractor, both agree to this method; and you can store and print it. If a statement
is lost or mislaid you can ask the contractor for a duplicate. This should be clearly marked
'duplicate'. This presentation covers the work you do as a subcontractor. But you may
find you are also sometimes working: as an employee or on a self-employed basis for a
private household which is outside CIS. You need to keep records for each type of income.
The good news is when you have registered as a subcontractor and have a Unique Taxpayer
Reference you don't need to register as self-employed again. John, like many other subcontractors,
also sometimes works as an employee and sometimes as self-employed for private households. He
keeps records and organises these into three sections: as a subcontractor, as an employee,
and those jobs he does as self-employed, that are outside CIS, normally for private households.
By keeping his records this way, John finds it easier to fill in his tax return at the
end of each year. Statements are an important part of CIS records. However you also need
to keep full details of your expenses and business records. There are separate presentations
on business expenses and business records. John's expenses include the materials he provides
and his protective clothing. His business records include payment and deduction statements,
receipts and his bank statements. Some of John's contracts are as an employed general
labourer. Your employer should give you the records you need to keep. This can include
copies of your contract, or terms and conditions. You will probably also get payslips. Every
time you stop working for an employer, they must give you a form P45 showing your earnings
and tax deducted. The P45 comes in different parts. You keep the P45 Part 1A. You'll find
that it has all the details you may need to put on your tax return. You may also get a
P60. This is where you are still employed but the tax year has ended. It's really important
to keep any P45 Part 1As and P60s you get, as you need them for your tax return. When
you fill in the tax return, the CIS work and self-employed work go in the same section,
'self-employment'. John takes the amount he is paid by contractors for CIS work, before
any deduction. He then adds this to his other self-employed jobs. This total is shown as
'turnover' on the self-employed pages on his tax return. The self-employed section of your
tax return also has a place for you to put any deductions taken from your payment and
deduction statements. It's important that you correctly fill this in. HMRC has other
presentations on self-employment and keeping business records. So I'm not going to repeat
the information here. Feel free to watch these afterwards. When filling in your tax return
you need to show any employment income separately from your CIS and self-employment income.
If you were employed, as well as working as a subcontractor, you should answer 'yes' you
were employed and 'yes' you were self-employed. You may have worked for more than one employer
or had more than one business. If you had more than one of each you need to tell us
how many and their names. When you work out the tax payable by your business, you use
the full amount of the invoice. The tax due is reduced by any CIS deductions that contractors
have already taken from you. This is why it is important that you show the correct amount
of these deductions on your tax return. When your allowances and expenses are taken into
account you may be due a tax repayment. If you owe any more tax, it'll be due by 31 January
following the end of the tax year. John has kept his records, and sends his tax return
within the deadline, and pays his tax bill on time. By doing this he avoids penalties.
HMRC can charge you a penalty if you don't keep adequate records or if you destroy your
records too soon. HMRC can also charge a penalty if you send in a tax return that isn't correct
and can charge interest if you underpay your taxes. Keeping accurate, up-to-date records
will help you to fill in your tax return, avoid penalties and pay the right amount of
tax. If you do make a mistake, HMRC won't charge a penalty if you can show that you
took 'reasonable care' with your tax. Keeping accurate records is one way of showing this.
The HMRC website has lots of information on record keeping, and sending in your tax returns.
Ask yourself, 'Am I keeping accurate records?' You can see this presentation again or look
at another one. All our presentations are free and many people are taking this opportunity
to see more than one. Thank you for watching.