How do I calculate the VAT due (cash basis) on receipts which suffer a cis deduction?

How do I calculate the VAT due (cash basis) on...

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I wonder if any of you knowledgeable community members can help me with this please for which I'm struggling to confirm the correct treatment?

I have a client company who falls under the CIS scheme and so receives payment of its sales invoices net of 20%.

The company is also vat registered and uses the cash basis.

Do I calculate the vat due on the net received after cis deduction or do I calculate it on the gross paid before cis is deducted? 

(He has yet to reach £30K or trade for a year so I have not applied for him to receive gross regarding CIS)

Your comments would be greatly appreciated.

Thanks Albie

Replies (8)

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Euan's picture
By Euan MacLennan
25th Jul 2014 11:15

On the gross amount

You account for the VAT charged on the sales invoices at the time that payment is received.

Example:

Sales invoice for £100 + £20 VAT issued on 30.06.14.  £100, being £100 + £20 VAT less £20 CIS tax, received on 31.07.14.  VAT returns on calendar quarter schedule.  You include £20 of output VAT on the September quarter VAT return.  You submit an EPS under RTI for the month to 05.08.14 to set off the £20 CIS tax against the company's PAYE liability for Month 4.

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Replying to bernard michael:
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By Albie
25th Jul 2014 11:51

Not the first time I'm thanking you Euan.

Thanks Euan for the answer and the example.

And its not the first time I'm saying thank you either.

As ever I'm much obliged.

Have a great weekend.

Albie.

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By claudialowe
25th Jul 2014 14:24

Life was simpler when.....

VAT and CIS tax were at different rates :-)

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Replying to davidwinch:
RLI
By lionofludesch
25th Jul 2014 14:59

Strange thing to say .....

claudialowe wrote:

VAT and CIS tax were at different rates :-)

.... but yes it was.  Clients now assume that VAT and CIS tax are the same thing !!

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By claudialowe
25th Jul 2014 16:37

Strange but true

Clients now can't differentiate between them, but when they were 17.5% and 18% they could - nowt so queer as folk!

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By DMGbus
25th Jul 2014 18:48

Materials can complicate things

I regularly come across this issue both with contractors and subcontractors.

It gets a little bit more complicated when materials (which are NOT liable to tax deduction) are supplied as well as labour, and here's a typical calculation in these circumstances:

£   750.00   Labour element

£   250.00   Materials element

---------------------------------------------- 

£ 1,000.00  Value ex VAT

£    200.00  Add 20% VAT

£  (150.00)  CIS tax deduction

--------------------------------------------

£ 1,050.00  Net payment by contractor / received by s/c

=========================================

From the subcontractors viewpoint, in the absence of a monthly tax statement, this is a serious problem as it is quite often the case that amounts received by the s/c differ from invoices issue with arbitrary deductions by the contractor for disputed figures or even arbitrary split between labour/ materials. It can get further complicated by CITB levy deductions and retentions.   HMRC decided to get in on the act with complicating things with regard to CITB levy in the past year publishing a new (and wrong) treatment of these, then back tracked to the former contractually correct and estalished treatment of CITB deductions for VAT purposes.

To sum up if materials are supplied as well as labour there is no easy formula to work back from the net payment to compute the VAT included and CIS tax deducted if the necessary paperwork is absent.

 

 

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By steve tees
26th Aug 2014 15:58

Yes, Yes & Yes

Absolutely agree that VAT is calculated on the figure before CIS tax deduction.

I specialise in construction industry software and regularly get new customers getting confused about the VAT and CIS.  Not only that but they confuse the tax dates.  CIS tax date is always on the date paid (it's basically income tax for subcontractors) whereas the VAT date is the invoice date.

Then, throw in self-billing (VAT date is the same as the self-billing invoice/certificate date) and the alternative authenticated receipt form of self-billing (VAT date is the either the date paid or the date the receipt is dated) and you have a lovely maze.

If I'd a £ for every time I've had to explain this...

Oh, and no one has mentioned retentions, CITB levy and Contra charges!

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By bob sled
06th Mar 2015 22:36

so what would the subcontractor be required to do with the extra vat payment if not vat registered?

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