What Should I Do If A Contractor Hasn’t Paid My Tax?

If you are a subcontractor wondering what you should do if your contractor hasn’t paid your tax, you will find detailed guidance in the following blog post. In addition to this, we will discuss the tax rules for contractors under the CIS as well as suggest alternative ways to pay your tax when your contractor hasn’t paid it.

What Should I Do If A Contractor Hasn’t Paid My Tax?

If you are a sub-contractor and your contractor has not paid your tax, it means that you will have to file your tax returns yourself. You will be doing so under the self-assessment system if you operate as a sole trader or a partner and under corporation tax if your business is registered as a private limited company.

Contractors don’t pay taxes for their subcontractors when you are registered for gross payment status and a contractor does not deduct the 20% tax return from your payments. However, if they expect you to file your tax returns on your own, contractors will not be making such deductions from your payments.

That said, if you are self-employed, registered with and paid through the Construction Industry Scheme and your contractor deducts 20% from your wages, they are obliged by law (Section 61 Finance Act 2004) to pay your taxes. Additionally, they must also provide you with a CIS statement that mentions the details of your payments and deductions. 

You can perform the following checks to confirm that your contractor has paid (or is paying) your tax:

• A contractor should ask for your UTR and NI numbers when you start working with them; otherwise, it is extremely unlikely they will try to verify you.
• You should be supplied with monthly CIS statements that show the gross amount paid to you as well as the CIS tax deducted (and to be paid to HMRC). 

In case your contractor has not made the necessary deductions from your earnings (which they should have if they are registered under the CIS), they can either be fined or become liable for making those payments from their pocket if 12 months have passed by.

If your contractor does not provide you with a CIS statement but made deductions from your earnings, they could have simply pocketed the amount. In this case, you will not be able to prove that you’ve already paid for your income tax returns through deductions (as you would not have any written proof) and will be required to pay your taxes (for the second time) under the self-assessment system.

How Can I Pay My Tax If My Contractor Hasn’t Paid It?

If your contractor hasn’t paid your tax, you can file your tax returns in either of the following ways:

• Self-assessment if your business is registered as a sole trader or partner
• Corporation tax if your business is registered as a private limited company

As a sole trader or partnership business, you can file your Self Assessment tax returns at the end of a tax term. For this, you should have records of the full amounts charged on your invoices as well as any deductions made by contractors in the CIS field.

HMRC will work out your tax and NI bill based on your earnings and deductions. If you’ve overpaid your taxes, the excess amount will be refunded to you.

As a limited company, you file your Corporation Tax as usual. You will also need to share your monthly Full Payment Submission (FPS) and an Employer Payment Summary (EPS) with the HMRC; along with the total CIS deductions. Based on this information, HMRC will calculate the amount that you owe.

What Are The Tax Rules For Contractors Under The Construction Industry Scheme?

Contractors (and sub-contractors) are bound by the following rules under the Construction Industry Scheme:

• There is no CIS deduction by a contractor when a subcontractor is registered for gross payment.
• CIS deductions should be at a rate of 20% when a subcontractor is registered for net payment and 30% when a sub-contractor is unmatched.
• In case of tax deduction from any profit element on materials, it must be reported. However, there will be no deduction from the VAT element of the invoice if a subcontractor is registered for VAT.
• Contractors should provide a monthly CIS statement to each subcontractor. This statement should cover all payments made in a tax month and deductions made.

Conclusion:

This article helps to conclude that there could be many reasons why your contractor hasn’t paid your tax. Therefore, any action that you may take as a consequence of this will depend on the cause(s) as well as whether or not any tax deduction has been made from your payments.

References:

Contractor hasn’t paid my tax! Here’s what you can do about it

Self-employed? No deduction statement means no rebate! Or worse!

What happens if you don’t pay CIS?

What you must do as a Construction Industry Scheme (CIS) subcontractor: Get paid – GOV.UK