CIS and deducting Materials

Contractor deducts materials @ 30%

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I have a client sub contractor on CIS.  His income statements show Gross less materials (30%) then 20% tax on balance.

It turns out the 'Materials' are Company van, admin/co accountants costs, insurances etc.  

Has anyone seen it done this way before, as I haven't and of course because it is written as Materials, in theory he should have receipts which he doesnt.

If anyone can shed any views on this it would be appreciated.

thanks

 

Replies (21)

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paddle steamer
By DJKL
30th Jun 2018 22:01

Materials to be deducted are described within HMRC guidance for CIS, the party does not appear to have read their guidance, in particular 3.13 and 3.14

https://www.gov.uk/government/publications/construction-industry-scheme-...

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Replying to DJKL:
RLI
By lionofludesch
02nd Jul 2018 13:32

DJKL wrote:

Materials to be deducted are described within HMRC guidance for CIS, the party does not appear to have read their guidance ...

Or, indeed, any guidance. The contractor seems to have made up his own rules.

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Replying to lionofludesch:
paddle steamer
By DJKL
02nd Jul 2018 14:21

I do like the idea.

Just report as one chooses, decide what does and does not get deducted for tax and rid the world of accountants

Anyone can now devise their own rules, no more right and wrong; Accounting Web posts are obviously ahead of their time, we evidently need to embrace all the misunderstandings within so many Any Answers posts as the new visionaries of the future.

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Replying to DJKL:
RLI
By lionofludesch
02nd Jul 2018 14:37

It already happens, judging by some of the stuff at Companies House.

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By Marion Hayes
01st Jul 2018 13:53

The Contractor can charge the subbie costs such as detailed under the CIS definition of a contra (paragraph 6.11). This kind of deduction does not affect the tax payable under the scheme but is an allowable deduction in the accounts.

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RLI
By lionofludesch
02nd Jul 2018 09:06

It should be the actual cost of materials incurred by the subcontractor. It's the subcontractor's job to provide that information. If he doesn't, he has 20% tax withheld on the full payment. The contractor should NOT be given the receipts. The subcontractor needs those.

It's often not such a big deal as it's only a cash flow effect.

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By Democratus
02nd Jul 2018 14:38

WAtch out for underdeduction: viz:
3.13 Materials

The contractor can ask the subcontractor for evidence of the direct cost of materials.

If the subcontractor fails to give this information, the contractor must make a fair estimate of the actual cost of materials. The contractor must always check, that the part of the payment for materials supplied isn’t overstated. If the materials element looks to be excessive we may seek to recover any under deduction from the contractor.

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Replying to Democratus:
RLI
By lionofludesch
02nd Jul 2018 14:41

Has this ever happened ?

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Replying to lionofludesch:
By Democratus
03rd Jul 2018 10:47

Not that i know of...but clients need to be advised.

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Replying to lionofludesch:
By SteveHa
03rd Jul 2018 13:48

One of our clients is getting stung for this (amongst other things) right now as a part of an employer compliance review.

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avatar
By User deleted
02nd Jul 2018 20:59

To clarify:
The Sub contractor receives Gross payment less materials and is taxed at 20% on balance. At first glance I thought ok looks right, except the sub contractor has never ever provided materials. The Contractor says
Gross Payment
Less 30% to cover transport, accountant etc & insurances) (which the contractor puts down as materials).
I dont think this is correct and shouldnt be deducting at all. They are running costs of a job which he should charge to the customer, not the sub contractor. Backhanded way of doing it.

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Replying to User deleted:
RLI
By lionofludesch
02nd Jul 2018 21:59

Hold on - whose costs are these transport, accountant and insurance costs ?

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avatar
By User deleted
03rd Jul 2018 12:44

These costs are the Contractors, he says he is deducting 30% each month (as materials) to cover his own costs. the balance is then taxed
Eg; So Contractor ABC Ltd give a gross payment of £1000 less Materials of 30% *(£300), balance £700 less 20% tax (£140), payment to Joe Bloggs (Sub Contractor) £560
*the materials are not for anything the sub contractor has purchased, it is a 30% charge from the Contractor for he says Transport, Insurance & Accountants costs.

Just crazy... When he queried with the other guys they said yea they all get charged 30% and he has done it that way for years.

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Replying to User deleted:
RLI
By lionofludesch
03rd Jul 2018 13:46

OK, in that case, the CIS position is correct.

It's open to the subcontractors to sue for the other 30% of their contract price. Whether they do that depends on how much they want the work and whether they've jacked up their prices by 42.85% already, in anticipation of a 30% deduction.

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RLI
By lionofludesch
03rd Jul 2018 14:09

Let me check I've got this right. Presumably the tax certificate shows something like .......

Gross £100
Materials £30
Tax £14 (20% of £70)

So what does the contractor pay ?

£56 or £86 ?

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Replying to lionofludesch:
avatar
By User deleted
04th Jul 2018 11:40

£56. To be fair I believe the Contractor has inflated the original gross payment as my client is earning roughly £500/£600 a week.
My client is not bothered about it and is happy with what he earns, but obviously as his Accountant I have queried. I guess I just use the figures given and pray there is no audit.

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Replying to User deleted:
RLI
By lionofludesch
04th Jul 2018 12:45

It sounds to me as though the contractor is deducting his own charges by contra. So, tax aside, Sub charges con £100 and con charges sub £30, leaving £70 to pay.

The difficulty is that Con should be deducting tax on the £100 - as you imply in the OP - rather than the £70.

Happily, this is the contractor's problem, not the subcontractor. In the old days, when HMRC did a proper job, this would have been picked up when the Inspector checked the SC60s against the accounts and noticed that the SC60s showed a lot more materials than the accounts. These days, with three line accounts, and nobody doing any work of merit at HMRC Towers, it's unlikely to be picked up outside a control visit.

Still, overall, nothing lost or gained by your client other than a modest cash flow advantage.

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avatar
By User deleted
06th Jul 2018 13:51

Thanks for all the replies, interesting topic. I can only submit what i have been given.
Whether this will all change with the introduction of MTD remains to be seen, another topic I am suspecting!!!

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Replying to User deleted:
RLI
By lionofludesch
06th Jul 2018 14:17

Psychic Sue wrote:

Thanks for all the replies, interesting topic. I can only submit what i have been given.

What you have been given ... or nothing.

Coincidentally, I have the same issue today, albeit on a smaller scale, and I have chosen to submit nothing.

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Replying to lionofludesch:
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By User deleted
09th Jul 2018 12:39

I cant submit nothing? I have statements that have been issued (right or wrong), so will go with what I have. My client is due a nice tax return anyway, so I have to submit what I have.

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Replying to User deleted:
RLI
By lionofludesch
09th Jul 2018 13:20

If you're going to submit it anyway, though you think it'll be riddled with errors, why start this thread ?

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