Construction Industry Scheme (CIS) tax rebates are available to subcontractors.
HMRC requires contractors to register for CIS and to verify subcontractors to determine the correct CIS deduction rates. CIS deductions are treated as advanced payments of Income Tax and National Insurance.
CIS Deduction Rates
Subcontractors registered with HMRC pay the standard 20% deductions, as opposed to the higher rate of 30% for unregistered subcontractors. In addition, some subcontractors are approved for gross payments where they have a history of filing and paying taxes on time.
CIS Tax Rebate
Subcontractors can apply for CIS rebates on their Self-Assessment tax returns. HMRC will refund any overpaid tax where the CIS deductions were greater than the actual tax liability for the tax year ended 5th April.
On average, we recover tax repayments of £1,500 per CIS subcontractor and our fees are only payable when the funds are recovered from HMRC.
NOTE: The tax calculator above is provided for research purposes only and is not meant to be relied upon for any other purpose. If you would to use our tax filing services please submit your email address along with a brief description of your requirements and we will get back to you.
COVID-19: Construction industry furlough claims rejected as ineligible.
Why are claims by construction companies for furloughed staff being rejected as ineligible?
One of the qualifying criteria for claiming 80% of the salaries of furloughed employee under the Coronavirus Job Retention Scheme (CJRS) is that the employer must have operated a PAYE scheme prior to the 19th March 2020.
PAYE/Construction Industry Scheme (CIS) Anomaly
HMRC operates two PAYE schemes for construction companies: Subcontractor Only and the hybrid Subcontractor/PAYE scheme.
Subcontractor Only PAYE Scheme – Ineligible for CJRS Grant
Construction companies which fall under the Subcontractor Only category are automatically rejected as ineligible when applying for the CJRS grant. This is despite the fact that these companies have been running employee payrolls for several years.
Subcontractor Only / PAYE Scheme – Eligible for CJRS Grant
All is not lost. Construction companies that have been rejected as ineligible for the CJRS grant can contact HMRC’s Employer Helpline on 0300 200 3200 and request that their PAYE scheme be modified to the hybrid version: Subcontract Only / PAYE.
Once HMRC has updated their system, the construction companies affected can re-apply for the grant after 72 hours.
Hector has his limitations
Despite the multiple qualifying criteria listed by the government for making a CJRS claim, Hector has decided to keep things Plain Vanilla for the construction industry by limiting his checks to whether the company’s PAYE scheme is Subcontractor Only or not.
Hector has no time for Tutti Frutti logic like IF PAYE Scheme equals Subcontractor Only and Company runs Payroll then Eligibility is TRUE.
To be fair, Hector is only a tax inspector and not an IT programmer.
This post on The COVID-19: Construction industry furlough claims rejected as ineligible was sponsored by Canalitix.com
COVID-19: Ineligible furloughed directors are mostly those receiving a monthly tax-free salary of £719 per month for 2019/20.
This issue relates to claims for Coronavirus Job Retention Scheme (CJRS) grants being rejected as ineligible. The companies affected are those where the directors have operated a payroll for themselves only and opted to receive a monthly tax and national insurance free salary of £719 per month for 2019/20.
Personal Service Companies (PSC)
CJRS ineligibility seems more likely to affect personal service companies where the payroll is run solely for directors and salaries are pitched at the PT level.
Class 1 National Insurance – Primary Threshold
The Primary Threshold (PT) for Class 1 National Insurance contributions determines the level of salary that will not attract PAYE and NI contributions for both the employee and the employer during the tax year. This threshold was set as £719 per month and £8,632 per annum for 2019/20.
The Primary Threshold has been increased to £792 per month and £9,500 for the 2020-21 tax year.
Directors tax planning strategy
A number of company directors adopt the tax planning strategy of paying themselves the PT salary during the year and either topping up this salary through interim dividends or paying a bonus salary in March 2020 to utilise their annual allowance (£12.500 for 2019-20).
Dividends are taxed at a lower rate after deducting the annual dividend allowance of £2,000, The lower rate of 7.5% assumes that total income doesn’t exceed the basic rate tax threshold of £37,500 because after this the tax on dividends becomes punitive.
Annual Employment allowance
In cases where a limited company has 2 or more directors and qualifies for the annual employment allowance, it may still be ineligible for the CJRS grant if it did not utilise any of it’s annual employment allowance before 19th March 2020.
The annual employment allowance is an annual grant to small companies to defray the cost of employers national insurance contributions up to £3,000 for 2019-20 and £4,000 for 2020-21.
Eligibility anomaly for directors
The CJRS guidelines explains that where employees, including company directors, receive salaries that vary during the year, the average salary for 2019/20 will be used to calculate the 80% claim for furloughed workers.
However, it would appear that the average salary in the guidelines is for the period up to February 2020 and not March 2020 which is the final month in the tax year. Therefore directors who ran a final payroll in March 2020 to utilise their annual allowance are left high and dry.
One argument put forward by commentators is that if these directors aren’t paying their taxes during the year how can they expect the tax payer to bail them out now. Maybe, this was the logic of behind the CJRS ineligibility rule. A fair cop.
Nevertheless, for the optimists this may just be a quirk in the computer software which was developed in the record time of 3-4 week. We are currently waiting for the CJRS support team at HMRC to get back to us on this issue within the next 48 hours. Unfortunately, that was promised on Tuesday 21/04/2020 at 10am.
This post on The COVID-19: Ineligible furloughed directors was sponsored by Canalitix.com
COVID-19: Befuddled? We are tax agents who can guide you through the Coronavirus Job Retention Scheme (CJRS) and Self Employed Income Support grants.
HMRC has recently reached out to Canalitix Accountants and other UK tax agents to assist businesses with their claims for furloughed staff wages under CJRS.
The CJRS dedicated online claims system is expected to go live on 20 April 2020 and we would welcome the opportunity to assist businesses including company directors and contractors on PAYE with their claims.
Payroll bureau and HMRC file only agents cannot access the CJRS dedicated online services.
However, file only agents can assist business with their CJRS claims because they hold information on furloughed staff, such as national insurance (NI) number, salary, employer’s NI and pension contributions.
This article on COVID 19: Applying for 80% of furloughed staff wages looks at the eligibility and qualify criteria for employers planning to apply to HMRC for help under the government’s Coronavirus Job Retention Scheme.
Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, Employers who have had to put staff on furlough leave during COVID-19 are eligible to apply for a grant to cover 80% of furloughed staff wages up to £2,500 per month.
Extended the scheme to cover the associated Employer National Insurance contributions, as well as the minimum employer pension contribution (currently 3%) on that wage
Allowed companies to reemploy staff made redundant after 28 February and place them on furlough.
Under the scheme, the grant of 80% of furloughed staff wages can be claimed for any of the following groups provided they are paid via PAYE:
Employees of businesses, charities, recruitment agencies and public authorities
Company directors of limited companies
Members of Limited Liability Partnerships (LLP)
Agency staff, including those paid via umbrella companies
Zero-hours contract staff
Employers must engage in formal consultation with staff representatives concerning changes employment contracts of staff expected to be put on furlough leave.
The government has advised employers that the decision process to decide who to offer furlough leave must comply with the equality and discrimination laws,
The consultation should explain that only staff who were on the payroll on or before 28 February 2020 will be eligible for furlough leave. However, based on new guidance from the government, companies may reemploy staff made redundant after 28 February 2020 and place them on furlough leave.
The government has indicated that furlough leave should be approved for 3-weekly intervals and employers can claim the 80% grant from the date that staff have been placed on furlough leave which can be backdated to 1 March 2020 until 30 June 2020. The scheme may be extended beyond June 2020 if the government decides it’s necessary to extend the social distancing measure beyond this date.
Changes in contracts of employment
Changes to employment contracts should highlight that:
the employer might be able to keep them on the payroll if they’re unable to operate or have no work for them during COVID-19, and
the employer will pay 80% of wages up to a monthly cap of £2,500 during COVID-19 furlough leave
Furlough leave confirmation
In order to be eligible for the job retention grant, employers must write to all affected staff to confirm that they have been placed on furlough leave and a record of this communication must be kept for five years.
COVID-19: The forgotten self-employed are individuals who have started their self-employment businesses since 5th April 2019 and, as a consequence are excluded from claiming grants through the self-employment Income Support Scheme.
Being self-employed is like walking a tightrope and trying to balance the demands of creditors, staff and bank overdrafts on the one hand while using the other hand to extract payments from customers while driving new sales. This is on top of satisfying your own physiological needs. Even without a pandemic, walking the walk can be hazardous with the slightest jolt capable of disrupting the balancing act.
Then along comes the news that the government’s coronavirus self-employment Income support scheme excludes individuals who started their businesses as sole traders and/or partnerships after 5th April 2019.
Who can claim a grant for Self-Employment Income Support?
The Self-Employment Income Support Scheme provides a taxable grant worth 80% of self employment trading profits up to a maximum of £2,500 per month for the next 3 months starting 1 March 2020 with the possibility of being extended.
To be eligible to apply, the application must be a self-employed individual or a member of a partnership satisfying the following conditions:
have submitted a Self Assessment tax return for the tax year 2018-19
traded in the tax year 2019-20
are trading when they apply, or would have been except for COVID-19
intend to continue to trade in the tax year 2020-21
have lost trading profits due to COVID-19
self-employed trading profits must be less than £50,000
more than half of the individual’s income must come from self-employment
Further, the averaging process will only apply to those years between 2016 and 2019 where a Self Assessment tax return has been submitted to HMRC.
Allowance for late submission of 2018/19 SA tax return
HMRC has agreed to allow late submissions of Income Tax return for the tax year 2018-19 by 23 April 2020. However, late returns will be risk assessed.
Why not allow the early submission of 2019/20 SA tax return
Considering the 2019/20 tax year comes to an end on 5th April 2020 and the grants are not going to be paid for several months until June 2020, why can’t the government ask the newly self employed to get their 2019/20 SA tax returns submitted online before the end of May 2020.
This is indeed a strange anomaly because the same computer logic that’s required to check whether or not the self-employed is still trading in 2019/20 could easily be applied to process the tax returns of newly created self employment business for 2019/20.
In order to save these new entrepreneurs from the growing food bank and universal credit queues, the government should request all self employed businesses to submit their 2019/20 tax returns before 31 May 2020.
No doubt HMRC are keen to mitigate the risk of fraud from false claims. However, the same risk assessment process being applied to late 2018/19 tax returns could be applied to early returns for 2019/20.
This post on COVID-19: The forgotten self-employed was sponsored by Canalitix.com
COVID-19: Deferral of VAT update: The government has just announced that businesses now have until 31 March 2021 to pay any VAT deferred as a result of this announcement. In addition, businesses can opt in to the deferral simply by not making VAT payments due in this period.
The announcement also advised that businesses who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. This can be done online if they’re registered for online banking.
Business taking advantage of this deferral need to cancel their direct debit in sufficient time so that HMRC does not attempt to automatically collect on receipt of their VAT return.
However, those who wish to continue paying as normal through the deferral period should do so if the wish.
The good news is that HMRC will continue to process repayment claims as normal but HMRC are still expecting businesses to continue to submit their VAT returns as normal.
This post on COVID-19: Deferral of VAT update was sponsored by Canalitix.com