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Simple Bookkeeping for Subcontractor Limited Company with CIS

  • 2 posts
  • # 103954

Hi, 

I'd appreciate some advice and thank you to anyone in advance for replies. 

My husband has started a limited company and I am hoping to keep the books right. Trouble is I bearly know where to start. I have researched endlessly what the companies obligations are and  how to do the bookkeeping, but I feel there are so many complications and questions unanswered. 

He has sent his first invoice to the agency he has been working for. We have registered with CIS and I understand that the agency will take a 20% CIS deduction which can be offset through PAYE, but I don't know how to record the invoice in the bookkeeping.

The company is small and very simple with the only sales being the work he is contracted to do through agencies and purchases being general expenses (Mileage, accommodation, ect). I planned to keep a single entry system manually (in an actual book) as opposed to a computer system, at least for now. From what i can gather this would include a cashflow book, sales ledger and a purchase ledger. (please someone tell me if I'm wrong!) 

So to simplify, my question at the moment is how to record the invoice in the bookkeeping?

I hope that makes sense...Embarassed 

  • 115 posts
  • # 103974

Hi there,

The best thing you can do is have a meeting with a qualified bookkeeper. Whereabouts are you?

Steve

  • 2 posts
  • # 104011

thank you for your reply.
I am based in scotland, highlands and am not currently in a possition to travel to a bookkeeper, nor could I afford one at the moment if I could. 

all I'm really looking for is how an invoice with a cis deduction is recorded. If I put the gross invoice amount in the sales ledger, where and how is the 20% taken off for CIS recorded? Do I need a seperate account for this?  

forgive me if I sound rediculous. This is all new ground for me.  

  • 491 posts
  • # 104050

When working as a sub-contractor (i.e. you bill your customer and they retain 20% of the bill as CIS tax), yes, the gross amount of the invoice should be recorded as income. Payment is basically in 2 parts - i.e. 80% is for real, money received and put in the bank, the other 20% is 'pretend' received and journalled to an 'asset' account.

When a sole trader, you can think of this as a savings plan, paying your tax for you. It accumulates in the asset account, then when you complete a self assessment tax return, you offset this asset amount against tax you have to pay, because it's already been forwarded to HMRC on your behalf, by your customer.

As a limited company, if you also employ people, and are therefore collecting PAYE tax and NI from your employees that you have to forward onto HMRC each month, you are permitted to offset this CIS tax asset against this payment. So if the PAYE and NI you need to forward for your employees is £500, but you have been stopped £200 by one of your contractor customers, then you can just pay £300 to HMRC by journalling the £200 from the asset account over to the payroll liability account - or something similar in a book!

I hope that makes sense for you.

Carol

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