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CIS and vat on subcontractor invoices

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  • # 114763

Hi I'm hoping someone can help. I use VT transaction and I have a client who is vat registered and receives subcontractor invoices. My problem is easier explained using some example figures:

Invoice for work completed £2800

CIS deducted £560

leaving £2240

Vat on 2240 = £112

Total payable to subbie £2352

If I post £2800 to cost of sales with £112 vat on it, £560 to a CIS creditor account and £2352 to the subbie's supplier account, it works perfectly but I'm left with too much in the sales for the perceentage to be right on the vat return? I'm assuming the £2240 is the cost of sale/expense  but if I enter it like this, I have not accounted for the CIS deducted. Any suggestions please? I'm driving myself insane!

 Many thanks in advance.

Karen



Edited at 27 Feb 2017 11:03 PM GMT

Edited at 27 Feb 2017 11:04 PM GMT

Edited at 27 Feb 2017 11:31 PM GMT
SapphireBusinessServices
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  • # 114765

Hi Karen

 

You need to calculate VAT on the full invoice element, set it aside whilst you calculate CIS & then add it back on

 

I presume from your calculations that VAT is 5% on your example transaction so you need:

 

Net Invoice £2800 + VAT at £140

CIS to deduct £560

Payment Due is £2800 + £140 - £560 = £2380

I usually account for CIS by entering a sales invoice as normal & then a credit note to my CIS code for the CIS deduction which leaves the correct amount to pay

 

Hope this helps

 

Lisa
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  • # 114766

SapphireBusinessServices said:

“

Hi Karen

 

You need to calculate VAT on the full invoice element, set it aside whilst you calculate CIS & then add it back on

 

I presume from your calculations that VAT is 5% on your example transaction so you need:

 

Net Invoice £2800 + VAT at £140

CIS to deduct £560

Payment Due is £2800 + £140 - £560 = £2380

I usually account for CIS by entering a sales invoice as normal & then a credit note to my CIS code for the CIS deduction which leaves the correct amount to pay

 

Hope this helps

 

Lisa

”

Thanks Lisa,

i think the subbies have invoiced the vat in the wrong way then? Shall I calculate it correctly and just leave a balance on the supplier account? 

Karen

 
SapphireBusinessServices
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  • # 114767

Hi Karen

It is very often the way!

Personally I would let them know & give them the opportunity to correct the invoices, at some point it is likely to be picked up & they will have to correct their end, they are likely to ask for your help so they dont have to lose out the VAT they have undercharged.  Although you would be under no obligation to help, this can be damaging to a relationship!

You can only reclaim the VAT that you have been charged on the VAT invoice so in this example if they have only charged £112 then you can only reclaim that amount even though it is the wrong %

Lisa
  • Member PM.Dip
  • 54 posts
  • # 114775

Hello Karen

I wouldn't conclude that the subcontractor has invoiced the VAT in the wrong way with the information you have provided so far. I understand from your post that your client is the contractor so I won't expect the subcontractor's invoice to include any CIS deduction element. It's the contractor (or contractor's bookkeeper) who will need to work out the CIS deductions based on what is included on the invoice. For example, is VAT, equipment or materials included? What makes up the 'Invoice for work completed £2800'?
SapphireBusinessServices
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  • # 114780

Harryans said:

“

Hello Karen

I wouldn't conclude that the subcontractor has invoiced the VAT in the wrong way with the information you have provided so far. I understand from your post that your client is the contractor so I won't expect the subcontractor's invoice to include any CIS deduction element. It's the contractor (or contractor's bookkeeper) who will need to work out the CIS deductions based on what is included on the invoice. For example, is VAT, equipment or materials included? What makes up the 'Invoice for work completed £2800'?

”

 

Hi Harryans

 

It is quite common for sub-contractors to state the CIS deduction expected on their invoices in my experience. Although, as you rightly say, this isn't their responsibility they do so to reduce errors, delays in their payments & to aid their own record keeping.

 

Karen's example shows that VAT is calculated on the invoice value after the deduction of CIS, VAT however should be calculated before CIS deduction

 

You are quite right of course that not all elements may be vatable and perhaps the invoice value includes some elements that may not be liable for CIS deduction but if as Karen has stated, the figures are taken from an invoice provided then the VAT has incorrectly been calculated after deducting CIS

 

Karen, are you sorted now with this issue?
  • Member
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  • # 114782

SapphireBusinessServices said:

“

Harryans said:

“

Hello Karen

I wouldn't conclude that the subcontractor has invoiced the VAT in the wrong way with the information you have provided so far. I understand from your post that your client is the contractor so I won't expect the subcontractor's invoice to include any CIS deduction element. It's the contractor (or contractor's bookkeeper) who will need to work out the CIS deductions based on what is included on the invoice. For example, is VAT, equipment or materials included? What makes up the 'Invoice for work completed £2800'?

”

 

Hi Harryans

 

It is quite common for sub-contractors to state the CIS deduction expected on their invoices in my experience. Although, as you rightly say, this isn't their responsibility they do so to reduce errors, delays in their payments & to aid their own record keeping.

 

Karen's example shows that VAT is calculated on the invoice value after the deduction of CIS, VAT however should be calculated before CIS deduction

 

You are quite right of course that not all elements may be vatable and perhaps the invoice value includes some elements that may not be liable for CIS deduction but if as Karen has stated, the figures are taken from an invoice provided then the VAT has incorrectly been calculated after deducting CIS

 

Karen, are you sorted now with this issue?

”

Hi!

many thanks all, yes knowing the vat has been incorrectly calculated has really helped, I thought it was me! I've claimed the amount of vat as stated on the invoice for now so I don't account for more than has been charged and left the balance as a non vatable expense expense on the subbies account and told my client the problem. If the invoice is then re-issued, I can make adjustments then. couldnt see a better way.

 

karen
SapphireBusinessServices
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  • # 114784

Great to hear you're sorted Smile
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