Apologies if this has been answered already, but if it has I can’t find it!
One of our clients is a subcontractor - the contractor he works for (as do many) require him to show the CIS deduction as part of the invoice. Currently the only way I can see of getting the CIS on there as a deduction is as a credit line, but of course that then makes the VAT total wrong as it calculates it on the post tax price rather than pre tax.
In summary, the entries that I need to make are:
Work done (A)
CIS tax deduction of 20% of A (B)
VAT at 20% of A ©
Has anyone worked out a way of doing this?
Thanks. No that’s not what I’m after at all. The contractor need the deduction to be showing on the actual invoice…so what I’m after is a way of doing that.
In Quickbooks what we used to do is have a sub total line after the work done, then we showed the CIS deduction as a minus and then the VAT calculated off of the subtotal line and the invoice all added up correctly.
I will double check with our accountant, although typically as a CIS sub-contractor you should be invoicing the contractor the gross figure (as per the guide here), the only thing you would need to do is itemise the labour and materials part, this will allow the contractor to calculate the appropriate deduction. The deduction is something the contractor would need to calculate and report to HMRC. If the deduction is applied on the subcontractor side you would be under reporting your sales.
The subcontractor guide I linked to above also explains how to pay the invoice in full to the CIS holdings account and transfer the lower amount into the bank to align with the payment made.
I know - I appreciate it sounds an odd way of doing it, but the majority of contractors out there (certainly that I’ve dealt with in the past 20 years) require the CIS deduction to be shown on the invoice.
There is no under reporting of sales using this method because all that’s happening is showing the deduction from the invoice on a separate line - which would then go to a ‘cis bank account’, similar to your guidelines, and then the payment from the contractor comes into the bank and balances the invoice off.
Personally I think this must make the accounting more complicated at the contractors end because surely they must enter the gross value of the invoice, so that they can offset it with the two payments, one to the subbie and one to HMRC!
In theory you can add a negative line to your invoice, I’m just not sure where you would post that to, or how that fits in with our own guidance? It may require some additional journalling this way? From other guidance I’ve read elsewhere it would seem that the contractors must report the gross amount from their subcontractor invoices, so I’m not really sure how the deduction fits in on the subcontractor invoice?
I’ve referred this to a colleague (an accountant), just waiting for a reply.
I suppose that if you were to mark the nominal that refers to the CIS bank account on your chart of accounts as “allow this code to be used on invoices” then you could create an invoice like
|Work I did
|Less: CIS deduction
(If the “work I did” was split over several lines and you want a sub-total before deductions then you’d have to add that up manually and use a comment line, which is less than ideal but still works)
This would put the correct amounts of £1000 on your general sales on the P&L report, £200 “money in” on your CIS bank account, and £200 to the sales tax control account as normal. The only thing you would have to fix manually is that QuickFile calculates box 6 on your VAT return from the net invoice totals (800, in this example), so you’d have to manually adjust box 6 to add back the CIS deductions.
Hi Ian, Thanks for suggestion. I’ll have a look at that - remembering to adjust the VAT feels like the only potentially risky area!
At the moment I’ve asked the contractor if they would accept an invoice showing work done + VAT, with the ‘amount paid’ box showing as the amount of the CIS deduction, with a note on the invoice stating that this ‘payment’ represents CIS. At least that way the sales are right, there’s no journalling or amending of VAT returns to do, and it’s pretty straightforward from my end.
It’s only the statistics box 6 (total net sales) that you need to adjust, the actual amount of VAT on the return will be correct.
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