PIXIE PAYROLL Blog

The construction industry has been in the news a lot recently with shortages of both staff and materials being an issue. Although building sites were allowed to keep working during part of lockdown, like many businesses they experienced shutdowns, staff absence and delays to projects.

But behind the scenes, many subcontractors and traders have a unique arrangement in terms of their pay and taxation and there is a special scheme to manage it. As we look after a number of these, we thought it would be an interesting topic for this month’s blog.

Why does construction need a special scheme?

Because construction is such a project-based industry and many of the people working on sites are self-employed, it needs a special way of paying people and helping them manage their tax liabilities.

HMRC administers the Construction Industry Scheme (CIS) and it has two elements – contractors and subcontractors; although somewhat confusingly, a person can be both a contractor and subcontractor.

All contractors must register with the scheme. Subcontractors don’t have to register but if they don’t, their deductions will be at a higher rate that if they were.

Contractors

Anyone who pays subcontractors to do construction work is classed as a contractor and so must register for CIS. A contractor can be a sole trader, limited company or in a partnership and they must register before they can start working with subcontractors.

Once the scheme is set up, contractors need to verify each subcontractor they take on with HMRC to check whether they are also registered and to confirm what the correct rate of deductions is. They’ll also need to show that the subcontractor couldn’t have been an employee instead and there are penalties to pay if this isn’t the case.

Contractors have to keep records of their scheme and file monthly returns as well as deducting the money and paying it over to HMRC.

Subcontractors

It’s not compulsory for subcontractors to register with CIS but doing so means deductions are taken at a lower rate. It also helps subcontractors to keep on top of their tax liability and manage cash flow. In addition, many contractors specify CIS when they are advertising vacancies.

As for contractors, a subcontractor can be an individual, limited company or partnership. It is possible for any one entity to be both a contractor and a subcontractor and so must register as both with the scheme.

Once a subcontractor is registered, the contractor they’re working for must deducted 20% of their payments and pass it to HMRC as a contribution towards their tax and national insurance. Then, when the subcontractor comes to do their self-assessment tax return, they can record the amounts already deducted which will go towards the overall tax bill.

Getting help with a CIS scheme

The good news is that if you are a contractor, you don’t have to do all this by yourself. If you have a CIS up and running already, we can administer it for you – verifying new subcontractors, calculating deductions and keeping records.

If you don’t yet have a CIS scheme and think you’re going to need one, just get in touch. We can register your business with HMRC for you and ensure everything is done correctly from day one.

Either way, let us help you and then it’ll be one less thing you’ll have to worry about when on site or project planning.

If you want to read more about CIS as a subcontractor, click here or as a contractor click here.  

The budget always makes headlines even in normal times but this year; as we emerge out the other side of the coronavirus pandemic and the cost of living is increasing, there was even more anticipation than usual.

There were a few headline announcements related to business and earnings which we have covered in this blog.

Wages

This was first announced over the weekend, but the Chancellor today confirmed that the National Living Wage will increase from £8.91 per hour to £9.50 next year. The other minimum wage rates are also increasing next year including a nearly 12% increase in the apprentice rate and nearly 10% increase in the rate for 21-22 year olds. You can find the table of all the new wage rates here.

Higher wages are great news for employees of course but some employers might be worried about managing a higher wage bill so do get in touch if you’d like to talk through the new figures.

This comes on top of the recently announced increase in National Insurance which means employees, employers and the self-employed will all pay 1.25p more in the pound for National Insurance from April 2022.

There was some better news for those who are working but also claim Universal Credit – they will be able to keep more of the money earned as the taper is being cut so instead of losing 63p of benefit for every £1 earned above the work allowance, the amount will be reduced to 55p. The amount that can be earned before the taper kicks in has also been increased by £500.

Taxes

Apart from the National Insurance increase mentioned above, there won’t be any other tax increases and the personal allowance will also stay the same. That means the amount you can earn before paying tax will be fixed at £12,570 for the next tax year and in fact for future tax years until 2026. This isn’t such good news with inflation predicted to be around 4% so money earned won’t go quite as far.

Businesses will be glad to hear that business rates will not be increasing next year as originally planned and more frequent revaluations will be introduced. Many of my clients are part of Cornwall’s vibrant hospitality industry to a 50% cut in business rates for pubs, cinemas, restaurants, gyms and other hospitality venues will be welcomed, especially after the very difficult 18 months they’ve just been through.

Essential purchases

There was also some good news on the cost of some of our day-to-day purchases. There will be no increase in fuel duty as was originally planned and there also won’t be a rise in duty on beer, wine, cider and spirits. In fact, rates on many lower alcohol drinks including rose wine, lower strength beers and wines will be reduced and the reduction in rates for draught beer will mean drinkers saving around 3p per pint…but not until 2023.

Overall, The Budget presents a fairly mixed picture for employees – the increase in wage rates may be offset by an increase in National Insurance. Some of the bigger announcements in terms of government spending are interesting though and may even be good news for Cornwall – there’s a promise of funding for a new Scillonian ferry, a commitment to match the EU money we used to receive and even the possibility of a share of the Levelling Up fund.

There are now only a few more days until the Coronavirus Job Retention Scheme (CJRS) – known better to us all as furlough – comes to an end. The scheme has been supporting employers and employees for 18 months now throughout the pandemic, so we thought we’d look back over that time and at this groundbreaking government intervention.

Start at the beginning

It was back in March 2020 that the government announced the first Covid-19 lockdown and the immediate closure of many businesses. At the same time, the CJRS was announced and the first employees placed on furlough in April. At this point, employees who couldn’t work would have 80% of their salary paid by the scheme, leaving the employers with the option to top up the remaining 20%.

The plan at this stage was for the scheme to run until October 2020 because, of course, at this point no one knew what would happen with the spread of the virus. Employers embraced the scheme with over 8 million employees paid via the scheme by May 2020.

Cautious reopening and flexible furlough

At the beginning of summer 2020, some of the restrictions started to ease and businesses were allowed to reopen. This led to the introduction of flexible furlough, where employees could be bought back to work part time for which they would be paid in the normal way, but then be paid via the scheme for the time they didn’t work.

The plan at this stage was for the scheme to close in October and for the amount of salary the government paid to reduce from the original 80%.

An autumn of change

It soon became clear that it would not be possible to close the scheme entirely in October 2020 as originally planned, so the Chancellor announced a number of different plans that varied the amount of salary covered.

In the end, in early November as the second significant lockdown was announced, he swept all that away and the 80% CJRS was extended for 6 months until March 2021. By this point, approximately 2.4million people were included in the scheme but by early December 2020, the numbers had increased again to over 4 million.

Furlough in 2021

The events of this year are fresher in our memory and the first half of the year was mostly all of us counting down the days to the various dates when lockdown restrictions were due to end. The furlough scheme was extended to April 2021 at one point but then finally in the Budget in March, it was extended once and for all until 30^th September 2021.

As we will all remember well, our original ‘Freedom Day’ was due to be on 21^st June but we had to wait a further four weeks in the end. Since then, we’ve had a summer of relative respite from restrictions and guidelines and a time that felt a bit more like normal.

What about the future?

As I write this, Coronavirus numbers are still worryingly high and there is a lot of talk about a further lockdown at some point next month. But there is no sign that the furlough scheme will be extended again so employees will either be returning to work or face the risk of being made redundant.

The job market has a high number of vacancies so unemployment numbers may end up being lower than feared although of course people may not always find new jobs in the right sector or paying the equivalent salary that they earned before.

Overall, the Coronavirus Job Retention Scheme is expected to cost over £80billion. It has also generated more admin and work to administer but there is no doubt it has helped many families survive the pandemic and allowed employers to retain their talented and experienced employees ready for when they could reopen.

The arrival of my new grandson a few weeks ago was a really exciting time for our family and although I jokingly called him the new Pixie Payroll apprentice, it got me thinking about the next generation and apprenticeships in particular.

The good news is that there’s never been as much help and support for employers who take on an apprentice as there is now so it’s a great time to think about it.

Recruiting an apprentice

You can take on an apprentice for many areas of your business; it doesn’t just have to be a trade role like in history – apprenticeships have evolved with the needs of modern businesses so they now cover areas such as marketing or technology.

The definition of an apprentice is someone who spends 80% of their time in the business and 20% of their time at off-the-job training. Apprentices are typically young but they don’t have to be – there is no maximum age for an apprentice so they’re also ideal for those looking for a mid-life career change. The apprentice will develop skills, knowledge and experience in their chosen field whilst earning a wage and contributing to your business.

The first step on an employers’ apprenticeship journey is to identify where you have skills gaps in your business or where you anticipate you might have skills shortages in the near future. Write a job description for that role and then you can start to look for suitable training providers. Once that’s in place, you can advertise your vacancy.

Then it’s also a good idea to appoint a mentor from within the business who can pass on skills to the apprentice outside of the classroom. You’ll need a contract of employment ready for their first day as well as a plan of on-the-job learning with milestones.

Funding for apprenticeships

The good news is that there is funding available to support your apprentice recruitment and training.

If your total wage bill is less that £3m, you will only pay 5% of the training costs with the government paying 95%. You can apply to Cornwall Council for that to be increased to 100% of the training costs being covered. Small employers – those with less than 50 employees – won’t pay anything if they take on young apprentices or care leavers up to 25 years.

If the apprentice is under 25, there will be no employers’ National Insurance liability on their wages. There is also a special apprentice rate in the National Minimum Wage of £4.30ph which is managed through your payroll in the normal way.

There is also currently a scheme in place where employers receive a £3,000 bonus for taking on an apprentice but this ends on 30^th September 2021 so there is little time now to take advantage of that.

More help and support If you think an apprentice is the right thing for you, get in touch with Cornwall Apprenticeships here – they’ll be able to help with funding queries, finding training providers and advertising your vacancy.