A construction firm seems to follow a simple principle: you hire employees and contractors to do a job, and they get paid for their services. All is well and straightforward until the taxes come in.
The Construction Industry Scheme, abbreviated as CIS, is a unique tax structure explicitly designed for the building and construction sector. It impacts the majority of building projects in the UK, from site preparation through repairs, decorating, and destruction. There are few exceptions, but for the most part, the plan is mandatory for general contractors.
If you’re working as a contractor, you know that anything that can go wrong will go wrong. Here are three tips to stay on top of your tax responsibilities:
- Document Everything
Save your employees and yourself from the hassle of facing tax problems by being efficient from the beginning. Upon hiring, fill out a starting form containing all your employee’s contact details, tax references.
It is both required and helpful to have a structured, accurate, and consistent documentation system in the workplace. You may guarantee that you are adequately prepared for various scenarios by recording as much as possible.
Also, confirm and verify minimum wage rates for each employee’s age to ensure an accurate filing and compliance with CIS.
- Verify and Update
As stated in our tip# 1, documenting and keeping records from the start can save you the time and effort of hunting them down along the way. This is especially true when verifying and updating a tax code.
A tax code is used to calculate how much income tax to deduct from an individual’s salary. An employee’s tax code can change when:
- He begins to earn money from a second job or a pension
- Beginning or cessation of benefits as a result of his employment
- He claims costs for which you are eligible for tax relief.
- He moves work, which may subject him to an emergency tax code.
- Do things monthly!
If there’s one common denominator for our three payroll tips, that is to be as efficient as possible. One way to do so is by doing things monthly.
- Monthly Payroll
A monthly payroll means you only have to invest your time and effort to work on your payables once a month. This makes it easier to manage compared to weekly and more accurate than quarterly or semi-annually. A monthly system also adjusts well with your deductibles, such as your CIS payroll services.
- Monthly Payment to the HMRC
Failure to pay the tax you owe by the original filing deadline means you’ll be charged interest and a monthly late payment penalty on the outstanding sum. To avoid incurring additional fees, it’s always in your best interest to pay in full monthly or as soon as possible.
- Do a Monthly Bank Reconciliation
Monthly bank reconciliations are necessary to have a better understanding of your cash flow and actual cash position. Your current bank account balance may not accurately reflect the amount of cash you have available, especially if you have outstanding transactions. The HRMC might charge overdraft fees to your company checking account if you’re not careful.
A bank reconciliation is a process of comparing the balances in a company’s accounting records to the information on its bank statement. The purpose of the bank reconciliation procedure is to determine if the two cash balances vary in any way.
