New CIS self employement record keeping & returns

[jase@xmsg.com]

Looks like I am about to end up doing the tax returns for a friend.

They were employed (by a ltd company) on PAYE, working as an
apprentice/labourer for a building firm. He always worked with the same
person, who as far as I can tell was also on PAYE with the company (although
he appears to be the employer/owner of the company). Payment was weekly by
cheque.

For some reason (the versions I have been told seem questionable), my friend
has been told that due to insurance both he, and the person he works for
will have to become self employed. They have apparantly registered with the
Revenue on the CIS scheme, where payment is made less 18% tax, with the
balance settled on the tax return. Getting info is a bit hard - The employer
tells him the changes, and he does little to question them (after all he is
an 18 year old labourer not an accountant)

Obviously the change has effects on job security (no longer employed),
holiday pay, SSP etc, need to pay for own insurance etc. I have concerns
that the change is to suit the employer, and that this is not Self
Employment as defined by the Inland Revenue, as he will still be working
"for" the same employer, and paid the equivilence of an hourly rate.

As I will no doubt end up sorting out the tax return, I want to ensure that
recording keeping is good from the start.

Payment will be in cash (I have concerns for an 18 year old, who is likely
to keep no records and just spend!)

1) Is it likely that the revenue may question "self employment" status? If
so would the consequency fall to the employee or employer? If a decision is
made later that that there is employement rather than "self employment"
would there be an additional tax liability due?

2) What records should be kept? I see little scope for deductions (the
previous employer is mentioning "benefits" such as claiming the cost of
mobile phone bills, clothes etc - However in reality these are not business
expenses, as I would anticipate that the only probably valid claim could be
a pair of work boots!). Can anyone clarify valid expenses?

At the moment I have sugested getting a diary, writing in EACH day place of
work, and entering every sum received. In addition all paperwork received to
be filed in chronological order, retain all bank statements, retain copy of
paying in slips. Is this too onerous? or should other information be
collected? Does any record of "personal" - i.e no business expenses need to
be recorded?

3) Do we need to produce accounts? i.e Balance Sheet/Profit & Loss
statements? or is the return sufficient.

4) As 18% tax is pay at source, is there a rough guide to calculate any
additional tax liability? Being an 18% old I will need to ensure that this
is saved each week, before it is spent down the pub! Any guidance?

Can anyone provide a bit of guideance?

One other question.....

The previous employer has said that he wants half of his "petrol money". i.e
the employer lives in the next street and take him to the job.

The "employer" will no doubt claim the petrol cost as an expense? - How
should I deal with this payment? Should be be listed as an expenses, when
there is no paperwork relating to the payment, and the employer is claiming
(double counting?)

[cranleys]

1) Re "self employment" status?

There is frequently a tax rebate in connection with the situation you outline. I would be happy to review and do your friend's return for free and be paid from any rebate.

2) Re: records should be kept

Yes he should claim the following: mobile phone bills, clothes, use of home costs. Yes including
a pair of work boots!

Your suggestion is a good one "At the moment I have sugested getting a diary"

Personal should be recorded as drawings on a cash book.

3) Re accounts - we would do this as a matter of the job, there is little point cutting corners here.

4) Re rough guide to calculate any
additional tax liability. Well there is the actual sheets provided by the Revenue themselves. Again there is little point you do this and not getting 100% right. It will fall back on your friend and it will be more than a drink you will owe him.

5. Petrol costs - this can be claimed as an expense.

Always available to assist.

Colin Davison
colin.davison@cranleys.co.uk

Property Tax Secrets 2005
Business Tax Secrets (coming soon)

Cranleys Chartered Accountants

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There is nothing to substitute proper professional advice because each taxpayer's personal and business circumstances differ.