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CIS gross or net

CIS gross or net

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Hi all,

I have a new CIS client who has been deducting CIS from his subcontractors but then also pays their travel costs with no deductions. 

Ignoring VAT, if the invoiced amount from the subcontractor was £1,000, the contractor correctly deducted the £200 and paid this to HMRC. Also in the same period they then paid £500 worth of travel costs and deducted nothing.

What do I report in respect of the £500:

1. £500 gross and £100 CIS should have been deducted.

2. Gross up the £500 to £625 and report £125 worth of CIS.

3. Something completely different.

 

Thank you for any help.

 

 

Replies (21)

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By lesley.barnes
21st Jul 2021 09:04

Gross up the £500 and deduct the 20% CIS. Travel and subsistence paid to a contractor counts for of CIS.

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By doubletrouble
21st Jul 2021 09:17

I disagree, it should be £500 with £100 deducted for CIS otherwise the subbie is making a profit

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By Sandnickel
21st Jul 2021 11:08

If they have already paid the subcontractor then they have 2 options:

1) Declare what actually happened (i.e. that they paid £500 without deduction)
2) Ask for the money back from the subcontractor or deduct it from a future payment and report what has actually happened.

Your client may end up having to pay over tax if they were to be investigated but you should always report what has happened rather than inventing transactions that didn't happen.

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Replying to Sandnickel:
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By lionofludesch
21st Jul 2021 11:52

Sandnickel wrote:

Your client may end up having to pay over tax if they were to be investigated but you should always report what has happened rather than inventing transactions that didn't happen.

If that happened, HMRC would be looking for tax on £500, not £625, so there's your answer.

CIS tax is just tax now instead of later. No point in trying (unsuccessfully) to be clever.

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By doubletrouble
21st Jul 2021 12:03

If the CIS300 has already been submitted then just amend it and resubmit to allow for their mistake, they can then pay HMRC the £100 that should have been deducted, your client should then pursue the sub-contractor for this money, but at the end of the day it was down to the contractor to make sure they make the correct deductions.

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By rmillaree
21st Jul 2021 12:16

there are multiple answers to your question

1 it the route that should have been used by the client

2 is the route that default that applies based on what has been paid - ignoring anything else

3 could the expenses be deemed to be part of a different contract from the cis work being undertaken and therefore excluding from cis calcualtions on that basis - its unlikely that this is the case but from a technical pespective i am not saying it would not be possible to argue that fact.

you need to make a decision as to whether you use one or two (3 could possibly be an option)
under 1 the subby should pay back £100 pronto they will be given voucher for that £100 so they arent losing out

2 which is probably the more technically correct position is fine as long as client and subbby are happy to remove the extra £125 from the next calculation of gross reimbursments due. The current reimbursment being 125 OTT and the next one under 125.

Obviously if the subby has done a runner nothing is an ideal state of play with regard to where they are at.

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By rmillaree
21st Jul 2021 12:16

there are multiple answers to your question

1 it the route that should have been used by the client

2 is the route that default that applies based on what has been paid - ignoring anything else

3 could the expenses be deemed to be part of a different contract from the cis work being undertaken and therefore excluding from cis calcualtions on that basis - its unlikely that this is the case but from a technical pespective i am not saying it would not be possible to argue that fact.

you need to make a decision as to whether you use one or two (3 could possibly be an option)
under 1 the subby should pay back £100 pronto they will be given voucher for that £100 so they arent losing out

2 which is probably the more technically correct position is fine as long as client and subbby are happy to remove the extra £125 from the next calculation of gross reimbursments due. The current reimbursment being 125 OTT and the next one under 125.

Obviously if the subby has done a runner nothing is an ideal state of play with regard to where they are at.

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Replying to rmillaree:
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By doubletrouble
21st Jul 2021 12:41

Not sure how 2 is the more technically correct when it is wrong, if £500 was paid which was subject to CIS then that is what should be reported why try and chase £125 back when at the moment it is only £100

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Replying to doubletrouble:
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By rmillaree
21st Jul 2021 16:54

doubletrouble
"Not sure how 2 is the more technically correct when it is wrong, if £500 was paid which was subject to CIS then that is what should be reported why try and chase £125 back when at the moment it is only £100

The fact is that if £500 net has been paid under a cis contract where tax is due then the gross cis amount is £625 and the tax payable is £125. So the facts of the matter are this amount has been paid so thats why i would default to as being the most being the most correct solution. The tax follows payments made not invoices raised.

I would say if the overpayment of £100 is promptly refunded by subcontractor and the payment is the treated as 500/100/400 - then ia m sure hmrc would probably be fine with that. However in this example there is no sign that funds have been or will be clawed back from subby.

One may take the viewpoint thats its 500/100/400 and £100 overpayment posted as non cis to debtor - hmrc may not quibble they may quibble if that is done.

Note if there are future payments by far the easiest thing is simply to gross up to £625 then deducted £125 from next gross payment and everything will be filed matching payments and the overpayment will have naturally corrected itself so there is nothing for hmrc to get beef with.

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Replying to rmillaree:
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By doubletrouble
21st Jul 2021 17:16

But surely the easiest thing to do is to do it correctly, pay the £100 to HMRC as it was the Contractors mistake and then get it off the sub-contractor,
If the subbie still works for the contractor then no problems just take the £100 back, why complicate matters by grossing the figure up and then getting £125 back

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Replying to doubletrouble:
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By lionofludesch
21st Jul 2021 17:24

doubletrouble wrote:

If the subbie still works for the contractor then no problems just take the £100 back, why complicate matters by grossing the figure up and then getting £125 back

More to the point, why pay the subcontractor £625 when he only asked for £500?

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Replying to rmillaree:
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By lionofludesch
21st Jul 2021 17:22

rmillaree wrote:

The fact is that if £500 net has been paid under a cis contract where tax is due then the gross cis amount is £625 and the tax payable is £125.

Well, that's a very, very big assumption. What does the contract (or, more likely, oral agreement) say ? Who knows ? (Though I think it more likely that the payment was intended to be gross and not net of tax.)

I've never come across any HMRC fella trying to gross up pay in these circumstances. But it's a long time since I dealt with a PAYE/CIS control visit. HMRC venture out of their offices much less frequently these days.

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Replying to lionofludesch:
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By rmillaree
21st Jul 2021 17:58

"Well, that's a very, very big assumption. What does the contract (or, more likely, oral agreement) say ? Who knows ? (Though I think it more likely that the payment was intended to be gross and not net of tax.)"

I 100% agree - i am not of any firm opinion here and any reasonable adjustment is likely to be fine as long as the client is otherwise compliant. It is a fact though if £500 has been paid for cis work the default correct calcs would normally be 625/125/500 and that was the point i was trying to make.

"I've never come across any HMRC fella trying to gross up pay in these circumstances. But it's a long time since I dealt with a PAYE/CIS control visit. HMRC venture out of their offices much less frequently these days."

I've seen them default to grossing up pay in similar circumstances albeit its a very long time since i had had any disagreement along these lines thankfully and i cant remember any specifics. Facts of the matter is that hmrc dont know if its genuine overpayment to subcontractor or if its some [***] and bull story whereby the individual is saying that to not pay the correct tax these should have paid in the first place based on the cash handed over. I guess if the business has proof it was overpayment of £100 to subby and clearly not for cis work done then the counter argument is certainly there to say that £100 was not for cis work.

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Replying to rmillaree:
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By doubletrouble
21st Jul 2021 18:39

But as Lion quite rightly points out using your method why should the sub contractor be paid £625?
The amount to include on the CIS300 is £500 with £100 deducted, it is like any supplier if you overpay them you ask for a refund this is no different.
It is probably a case of (just guessing here) that the Contractor thought travel was the same as materials and that CIS does not need to be withheld, now they know better they have every right to ask for the overpayment to be refunded.

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Replying to rmillaree:
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By lionofludesch
21st Jul 2021 19:09

If you gross it up, you MUST give the subcontractor a tax voucher for £125 and give up your right to sue for the overpayment.

Them's the rules.

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Replying to rmillaree:
ALISK
By atleastisoundknowledgable...
28th Oct 2021 00:44

rmillaree wrote:

under 1 the subby should pay back £100 pronto they will be given voucher for that £100 so they arent losing out

Giving up £100 cash now, for a £100 credit on his tax bill due in January 23? Try telling the subby he’s not losing out.

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Replying to 356B:
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By lionofludesch
21st Jul 2021 14:36

356B wrote:

https://www.gov.uk/what-you-must-do-as-a-cis-contractor/make-deductions-...

None of that is in dispute.

What's the point you intended to make?

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Replying to lionofludesch:
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By 356B
21st Jul 2021 16:44

I thought the list of allowable deductions from gross might be of interest.
Take away the amount the subcontractor has paid for:

VAT
materials
equipment which is now unusable (‘consumable stores’)
fuel used, except for travelling
equipment hired for this job (‘plant hire’)
manufacturing or prefabricating materials

PS. When I answered this, none of the earlier answers appeared on screen.

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Replying to 356B:
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By lionofludesch
21st Jul 2021 17:06

Ah, right.

But it's correcting errors that this query is about.

Some say you should gross up the £500. If you do that, you'll need to give the subcontractor a tax voucher (or whatever they're called these days) for £125, so he can set it against his liability. He gets £625 in value for the £500 he spent.

Others, like me, say you should pay the £100 tax and the subcontractor owes you £100. Personally, I wouldn't be giving him the voucher until he'd paid for it. Alternatively, if he works for the contractor regularly, there's an opportunity to recover the debt from future payments.

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By kestrepo
22nd Jul 2021 11:46

Reading the comments above reminded me of this from the Simpsons:

Homer (Max Power): Kids, there's three ways to do things; the right way, the wrong way and the Max Power way!
Bart Simpson: Isn't that the wrong way?
Homer (Max Power): Yes, but faster!

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