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cis tax system – bad for business

Comment 1st July 2010

The current cis tax system is causing small to medium sized business to fail by causing them unnecessary cash flow and red tape problems

 

In the contracting industry, you have main contractors, who subcontract to small to medium sized companies, who in turn sub contract to sole traders

 

The main contractor deducts 18% tax before paying invoices from the small to medium sized sub contractors.  This 185 tax deduction is then paid to HMRC and the main contractor issues a tax voucher to the sub contractor

 

The invoice submitted by the small to medium sized business is not an invoice for profit alone, the invoice is likely to contain a profit element of between 20/30% the balance is their own costs including payments to their own small sole trader subcontractors

 

The tax taken by CIS cannot be set against corporation tax but must be reclaimed or set against PAYE

 

This is a very unfair system and is causing bankruptcies as a result of HMRC taking money they are not entitled to and which they largely have to pay back to the tax payer eventually

 

In addition to the cash flow problems, the system creates a nightmare level of beaurocracy, as the tax payer cannot claim back the tax paid until it has the tax voucher from the main contract – getting this is not within their control, they have to write and phone constantly to get the vouchers, then then have to spend hours calculating the cis tax taken from them by the main contractor and then fight with the tax department to reclaim the overpayment.

Why does this matter?

It would stop small to medium sized business in the building industry going bankrupt and putting people out of work – not to mention eventually stopping them from paying any tax to HMRC
 


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