Bob The Builder, can he fix it? Bob the Builder….. Yes he can.
Bob is a Sole trader builder based in Bradford. He mainly building houses and extensions, one house at a time for individuals. Sometimes he employs Wendy to do a spot of bricklaying, cash in hand…..
“Hold your horses there Bob my friend” says Rachel from Account-ant. You could be sailing right into a fine from HMRC.
You see, HMRC wanted to tighten up the controls over taxation in the Construction Industry because it has been notorious for tax dodging, cash in hand jobs, for many years. They wanted to reclaim that lost tax income… so made some changes!
In Summary the changes are to how Sub-Contractors are paid by main Contractors. How the VAT on subcontractors materials invoices is treated has also changed.
Bob’s heard the confusing term “reverse charge VAT” and doesn’t have a Scooby Doo what it means! “Well, Bob” says Rachel from Account-ant “from March 2021 Contractors must pay VAT over to HMRC on behalf of a VAT registered subbie”
Another change that HMRC made was that Contractors must pay 20% per month for registered subcontractors and 30% for non registered subcontractors straight to HMRC via their PAYE.
HMRC keep all these on record and then match them up to subcontractors returns when they submit their yearly tax return.
This is why it’s super important to keep all your records, as any discrepancies could be picked up and potentially lead to fines being levied against them.
From a Contractors point of view too, as paying HMRC the 20% / 30% you must fill in a return even if you’ve had no subcontractors. If you fail to do this then you’ll receive £100 fine for every month missed.
You can dispute the charges but let’s try to not even be in that situation in the first place eh?!
So in summary:-
Contractors deduct 20% or 30% from their subcontractors payments and pay it straight over to HMRC.
Contractors deduct VAT from subcontractor payments and pay it over to HMRC.
Subcontractor register with HMRC, you receive 20% less than you’d expect, but it reduces your overall tax bill to pay at the end of the year.
I hope this helps you all. If you need to have a chat and a piece of my bottomless cake, give me a call.