Hi there, I have an invoice from a subcontractor with 2 lines, 1 for goods (£550) the other for labour (£220). I have to pay VAT OF £154 but £44 of it is the CIS on the labour element. Does anyone know of an option to split the VAT element and the CIS element from the invoice so my VAT return isn’t affected. Is anyone able to help with how to record this properly?
Many thanks
Ross
The Purchase Invoice allowas you as many individual detail lines as you want.
1st Line Code 5000 Goods for resale 550.00 20% 110.00 £660.00
2nd Line Code 6000 Labour Costs 220.00 20% 44.00 £264.00
Invoice Totals Net £770.00
VAT £154.00
Invoice Total £924.00
Regards
David
It sounds to me like you’re mixing up two different concepts here - the £44 “CIS on the labour element” is not related to VAT, it’s essentially an advance payment towards the subcontractor’s income tax bill.
They’ve invoiced you for
The invoice total is presumably £770 with the VAT covered by the reverse charge, and that is how you should record the invoice in QuickFile - two lines, both 20%, and select the CIS reverse charge under the VAT option section at the bottom of the purchase editor. This should show the £154 VAT added on at the line level and then taken off again at the bottom of the purchase, leaving the £770 net as the final total.
Now completely separate from that, you need to withhold 20% of the net labour charge under CIS, so you’ll be paying a total of £726 to the supplier, and the remaining £44 to HMRC on your next CIS return. The KB article linked by @Bagpipe covers this, you use a holding bank account, mark the purchase as paid in full (£770) from the holding account, tag the £726 payment you actually made to the supplier as a bank transfer from your current account to the holding account, and then make a manual transaction to move the £44 to PAYE liability so it becomes part of your monthly settlement payment to HMRC.
If the VAT reverse charge didn’t apply then that doesn’t change the CIS element, you just wouldn’t tick the reverse charge box, so the invoice total would be £924 including VAT, you’d pay £880 to the supplier (all the VAT, plus the net less £44) and withhold the same £44 for CIS.
Thanks for this David, top man.
I’m getting it now. I am familiar with your explanation of the purchase invoice lines I am just worried that the £550 line is subject to VAT as goods and the £220 line is subject to reverse charge CIS so my purchase invoice should show total VAT £110, CIS reverse charge of £-44 on the labour and gross total £880.
I can’t figure how to make that reflect in my purchase invoice. Any ideas?
Your help is very much appreciated
Regards
Ross
Ian, this is a massive help and I get it. Nice one
Can I press you for a little more support tho? Hope that’s not too cheeky.
In this case the actual grand total of the invoice £924 is made up of £880 paid to the sub contractor ( £550 plus £110 VAT plus the £220 net labour cost). The final £44 which is 20% reverse charge CIS I hold hack in your nominal bank account but for the life of me I can’t get my purchase invoice to show that one of the purchase lines is VAT and the other is reverse charge. I can only get it to reverse charge all of the lines or none.
But are you saying that doesn’t matter and I use the holding account to make it work for my VAT and CIS returns.
Thanks very much, sorry to be dumb about this. I can usually work things out but this has me all confused.
Cheers
Ross
Hi Ross, I agree with Ian’s reply. I think you are mixing up your terminology and therefore confusong yourself.
There is a big difference between Reverse Charge VAT and CIS25 Tax Deduction as explained by Ian.
I have a separate “Bank Account” (or Holding Account as Ian describes it - same thing). I do 2 x “Log Payment” against the Invoice.
The first is for the amount I actually send to the Supplier from my Bank Account. Leaving a balnce left to pay which should equal the CIS25 Tax Deduction Amount.
Next I immediately do “Log Payment” for thr Tax Amount but make the payment from the Holding Account or CIS25 Deductions Account.
The invoice is now fully paid.
Finally as Ian explains A Journal needs to be raised to move the Tax deduction from the CIS25 Deductions Account to your PAYE Liability Account (2210) ready for payment to HMRC.
If you add the CIS25 Tax Deduction Account to your dashboard it should always be NIL if you’ve done the manual transaction correctly
No. The £880 paid to the sub contractor is made up of
It’s confusing because the rate of VAT and the CIS deduction rate co-incidentally happen to be equal at 20%, but the £44 you’re withholding is not VAT. From the way you describe things there’s no reverse charge involved at all, you’re paying the full £154 VAT over to the sub contractor and separately withholding £44 of the net labour for CIS.
If the VAT reverse charge did apply (if you haven’t declared yourself to be an end user or intermediary) then it would apply to all the VAT on the whole invoice - materials and labour - and that would be independent of the £44 CIS withheld from the net.
Ok, this is super helpful everyone. Yes I can see I am confusing the terms and therefore the tickbox functions in the VAT section of the purchase invoice.
I am on hols today and tomoz but when I get back to my deck I am going to put what you (this excellent community) say into action and see where I get too.
You have all been very generous with your time and patience
Many thanks
Ross
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