What Is a Contractor’s Monthly Return? (Overview)

Contractors and subcontractors

The government has announced it will require contractors and subcontractors to register annually with HM Revenue & Customs (HMRC). This follows the introduction of a new law requiring companies to report payments to overseas workers via the Government Gateway system.

Under the Construction Industry Scheme Regulations 2018, contractors and subcontractors must register with HMRC if they spend more than £10,000 per annum on construction work. Companies failing to do so could face fines and penalties.

Those who fail to register will receive a letter asking for information including name, address, occupation, date of birth and National Insurance number. They will then be required to complete a form confirming whether they are registered under the scheme and providing further information about their businesses.

This is part of the government’s commitment to improve transparency around the use of migrant labour in the UK.

A spokesperson for HMRC said: “We want to make sure we know where our money goes, and how much tax you pay.”

Monthly return

Contractors are required to file a monthly return to HM Revenue & Customs (HMRC). This includes information about how much you earned during the month, what you paid out to employees and contractors, and what you owe to HMRC. If you don’t pay anything to anyone, there won’t be anything to report.

However, if you do pay someone, it doesn’t mean you’re automatically entitled to a refund. You still have to prove that you’ve overpaid your taxes – something that isn’t easy to do.

You’ll probably want to look into setting up a payroll system like Xero. As well as being able to track employee expenses and wages, it’ll help you keep accurate records of everything you spend money on.

If you’re self employed, you could use Xero’s invoicing feature to send yourself bills every month. This way, you know exactly what you owe to HM Revenue & Customs each month.

Identification

The government is cracking down on contractors who hire undocumented immigrants. They are now required to verify each worker’s identity and immigration status prior to starting work. This includes checking whether the person has a valid Social Security card. If it does, the contractor must check the National Criminal Information Center database to confirm the person isn’t wanted by law enforcement.

This requirement applies to companies that use subcontractors, like plumbers, electricians, painters, landscapers, roofers, carpenters, builders, home improvement stores, etc.

In addition, the contractor must keep records of how many people he hires, where they come from, what type of visa they hold, and the date they start working. These records must be kept for three years.

Employed or self-employed?

HM Revenue & Customs (HMRC) says it will use “all relevant factors” to determine whether someone is employed or a self-employed individual. This includes considering the length of employment, how much control you have over your work, and what type of contract you have. However, there are several ways to avoid being held responsible for paying national insurance contributions (NICs). One way is to make sure the contract clearly states that you do not want to be liable to pay NICs. Another way is to request that the client signs off on the form confirming he does not want to pay NICs. If you’re unsure about whether someone is employed or independent, HMRC’s Employment Status indicator tool can help.

There are several ways for people who don’t want to be classified as employees to show that they are self-employed. For example, some people choose to set up a limited company or partnership. They might also be able to claim expenses such as rent or mortgage interest payments.

Verification

HMRC requires contractors to verify their subcontractors are legally entitled to work in the UK. This includes checking whether they hold valid immigration status and ensuring they comply with employment law requirements. During the verification process, HMRC issues a unique number to each contractor and subcontractor, allowing them to track progress throughout the process.

Contractors should keep records of their subcontractors and include them on their returns. They should also ensure they are registered with HMRC and provide accurate information about themselves and their workers.

Who must be verified by HMRC?

Contractors who pay subcontractors are often unaware of the extra steps they need to take before paying out money to those companies. This article explains why contractors should make sure they know what information to ask for before signing off on invoices.

HM Revenue & Customs (HMRC) requires contractors to verify subcontractors before making payment. This process involves checking whether the subcontractor is registered with HMRC, ensuring it provides proof of tax registration, and confirming it pays VAT. If you don’t do this, you could end up being liable for penalties and interest.

The good news is there are some simple ways contractors can avoid problems. For example, you can request a copy of the subcontractor’s most recent annual return via email or post. You can also ask them to send you a copy of their latest invoice.

You can also use free online tools such as www.gov.uk/check-vat-number to confirm the number belongs to a valid VAT account holder. However, you shouldn’t rely solely on this tool because it doesn’t cover every situation. In addition, if the subcontractor uses a different name to the one on the invoice, you won’t see anything.

If you find the subcontractor isn’t registered, contact HMRC and explain the problem. They might be able to help resolve the issue without penalising you.

The Payslip

If you’re working as a contractor, it’s likely that you’ll receive a payslip every month. This document contains information about how much money you earned during the previous month, what deductions you had to make, and whether you received any bonuses. But are you really sure that you know everything there is to know about this document?

You might think that a payslip is just another piece of paper, but it actually holds some very important information. Here’s why you need to take care of your payslips:

1. Keep it safe and secure

Employers must keep copies of their payslips for six whole months after the end of each financial year. If you don’t do this, you could face fines up to £10,000 per employee.

2. Make sure you have enough payslips

The National Audit Office found that 16% of businesses didn’t have enough payslips. And if you lose one, you won’t be able to prove exactly how much tax you owe.

3. Check your payslips regularly

Are there any tax deductions taken from the total amount paid?

When calculating how much you owe the Inland Revenue, it pays to know exactly how many pennies you are paying for each item. If you don’t, you could end up owing thousands of pounds. Here’s why…

The government makes allowances for certain types of payments, such as those for building work, but there are some exceptions. For example, if you pay someone £10,000 plus VAT for a job worth £15,000, you won’t be able to claim back the VAT because it doesn’t apply to goods bought for personal use. However, if you buy a van for £2,500 plus VAT, you can reclaim the VAT. This is because the van is being used for commercial purposes.

But what about the rest of the money? You might think that if you spend £5,000 on a house, you can deduct every penny – even though you’re buying it for yourself. But that isn’t true. HMRC allows you to deduct only the cost of the things you purchase for your home, such as furniture, curtains, carpets etc. Anything else you spend must be added to the total amount due. So if you buy a sofa and a TV for £1,200, plus VAT, you can only deduct £800 because that’s the amount you spent.

Penalties

The whole system is backed up with a series of penalties. These cover situations in which a taxpayer fails to send in his/her correct monthly return on time, fails to provide CIS records for inspection, or incorrectly declares their employment status. A late return under the CIS scheme triggers penalties as follows:

a basic penalty of £100 per month for failing to meet the deadline of the 19th of each month

where the failure continues after two consecutive months after the due date a penalty of £200 per month

after six months the penalty increases to the greater of 5 % of the tax owed or £300 per month

Paying over the deductions

A contractor must pay over all deducted amounts within 21 days of the date the tax return is filed. This includes any deductions relating to PAYE, NICs, National Insurance Contributions (NICs), Employer’s NI contributions, VAT, Corporation Tax, Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, Council Tax, Business Rates, Fuel Vat, Excise Duties, etc.

The amount of deduction that can be claimed depends on whether it is being paid by way of a monthly salary, weekly salary, daily salary, hourly wage, commission, bonus, overtime, tips, commission, allowances, etc.

If a contractor pays an employee either via payroll or cash in hand, then the employer should make sure that the appropriate amount is deducted from the gross salary paid. For example, if a contractor pays an employee £100 per week, then he or she should deduct the amount due from the gross salary paid; however, if the contractor pays an employee £20 per hour, then he or she does not have to deduct anything from the gross salary paid, since there is no difference between the gross salary paid and the net salary received.

What about subcontractors?

Subcontractors are people who provide goods and/or services to another person or firm. In some cases, they do it without being paid directly by the client. A subcontractor could be someone you hire to help you build a house, or someone who does electrical wiring for you.

There are lots of different types of subcontractors, including builders, plumbers, electricians, painters, decorators, gardeners, cleaners, handymen, etc. You might even know one yourself. But there are certain rules that apply to everyone working in the UK.

The government agency responsible for making sure that workers are safe, fair and legal is called Her Majesty’s Revenue & Customs (HMRC). They make sure that employers pay taxes and national insurance contributions correctly. And they also make sure that contractors comply with employment law. If you don’t follow those laws, you could face fines or even prosecution.

So what happens if you choose a subcontractor who isn’t registered with HMRC? Well, you could end up paying penalties, or worse – they could steal your money.

Gross payment status

A contractor should always check if there is a “gross payment status” before paying out money. This is because contractors are required to withhold tax from payments to subcontractors. Failure to do so could mean losing all the money paid out.

HMRC says that if you fail to declare a subcontractor, you could face fines up to £10,000 and/or imprisonment for three months.

“Registering with HMRC”

Subcontractors must register with HMRC if they are registered companies or limited liability partnerships. They must provide information about themselves including name, address and contact number.

If you aren’t registered with HMRC, you might not know what happens to your money. You could find yourself having to repay money to subcontractors.

Frequently Asked Questions

Who should register for CIS?

The Construction Industry Scheme (Cis) requires contractors working on public sector projects to pay tax on their earnings. However, it does not apply to those carrying out works on private buildings, such as commercial property or residential homes. This means that some people are exempt from paying income tax, even though they could still face National Insurance contributions. If you use subcontractors to carry out work on your building project, you must ensure that they register for the scheme. Otherwise, you could face penalties.

HM Revenue & Customs (HMRC) says that anyone who carries out work on a public building project – whether a council, a housing association or a charity – needs to check the registration status of the subcontractors involved. You can do this online via the CIS Register.

If you find someone who isn’t registered, contact HMRC immediately. They can take action against them and fine them up to £5,000 per person.

In accordance with the CIS, what obligations do contractors have to fulfill?

Contractors working in the UK must ensure that they comply with tax rules and regulations. This includes completing a CIS return each month and making CIS payments to HM Revenue & Customs (HMRC). Failure to do so could lead to fines.

The government introduced CIS in April 2016, meaning that contractors now face additional reporting requirements. These include submitting monthly returns to HMRC, paying quarterly CIS fees to HMRC and keeping records of VAT invoices.