UK Contractor Tax Journal

Contractors face two kinds of HMRC scrutiny: the IR35 status enquiry, and the routine check of the company accounts. Both are survived the same way: with records that are complete, contemporaneous and organised. Here is the system. Contracts and status evidence first For IR35, the contract is the starting point but never the whole story. Keep every version of every contract, the working practices evidence that backs up your status determination (who controls the work, substitution clauses exercised or available, financial risk taken), and any CEST outputs or professional status reviews. HMRC looks at reality, not paperwork, so evidence of how you actually worked matters more than what the contract says. The company books, kept properly Bank feeds reconciled monthly. Every expense with a receipt, photographed at the time, not reconstructed in January. Dividend vouchers and board minutes for every dividend. Payroll records including P60s. A contractor's company is small, which means ...

CIS verification: what contractors must do before starting a new site   Verify first, pay later In construction, the first payment to a new subcontractor carries a hidden compliance step that catches out busy contractors every month. Before paying any subcontractor, the contractor must verify them with HMRC under the Construction Industry Scheme. Verification confirms the subcontractor is registered and tells the contractor which tax deduction rate to apply. Skip it, and the default deduction is 30%, a painful and entirely avoidable over-deduction that sours the commercial relationship from day one. What verification actually does Verification is HMRC's way of matching the subcontractor to its records and confirming how payments to them should be treated. The contractor submits the subcontractor's details through the CIS online service, and HMRC returns one of three outcomes: Gross payment status: no deduction, for subcontractors who meet the turnover and compliance tests....

  If you are a subcontractor in construction, you are used to watching a chunk of your invoice disappear before it reaches you. Contractors deduct 20% from labour payments when you are registered for the Construction Industry Scheme, or 30% if you are not. Those deductions are not lost money: they are advance payments of your tax. But reclaiming them correctly at year end is where subcontractors, and their accountants, most often go wrong. How deductions suffered actually work Every time a contractor pays you, they must give you a payment and deduction statement showing the gross amount, the materials element, and the tax deducted. HMRC also receives the same information through the contractor's monthly return. The deduction is a credit against your final tax bill. If the total deducted during the year exceeds what you owe, the excess comes back to you. If it falls short, you pay the difference. The system is straightforward in principle; the problems are all in the evidence. Co...

CIS Gross Payment Status: The Turnover Test Explained Under the Construction Industry Scheme, contractors must normally deduct tax from payments to subcontractors: 20% for registered subcontractors, 30% for unregistered ones. Gross payment status is the exception that changes everything. It lets a subcontractor be paid in full, with no deductions, which transforms cashflow overnight. But HMRC does not hand it out lightly. The centrepiece of the application is the turnover test, and this is where most applications succeed or fail. What gross payment status actually gives you With gross payment status, the contractor pays your invoice in full and you account for the tax through your tax return. The difference between 20% deducted at source and full payment transforms working capital: materials and wages get paid on time, and you stop lending HMRC your money interest-free until the year end. The status applies to the business, not to individual contracts, and it covers all your CI...

By John Thomas, Senior Accountant For early-stage UK companies, the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme are the two most powerful fundraising tools available. They offer investors generous income tax relief, capital gains exemptions and loss relief, which makes investing in a risky startup significantly less risky after tax. If you are raising money, understanding these schemes is not optional. Here is how they work. What the schemes are SEIS is aimed at very early-stage companies raising their first external investment. EIS is for slightly more established young companies raising larger rounds. Both work the same way in principle: qualifying investors who buy new shares in a qualifying company get income tax relief on the amount invested, pay no capital gains tax on the eventual disposal if conditions are met, and can claim loss relief if the investment fails. The reliefs apply to the investor, not the company, but the company must qualify and m...