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CIS not being deducted on CIS work

Client says work within CIS but nothing deducted

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Sincere apologies for what is likely a basic question, but beyond the basics CIS is a closed book to me.  My Google'ing suggests the customer is at fault but before I cause a fuss I want to check.

In a nutshell, the client is a subcontractor for a range of contractors.  They have treated all their sales as within the DRC and so not added any VAT to their invoices, however some of the payments are received gross without CIS being deducted.  I queried this with them and they said all the supplies were within CIS, but the contractor doesn't always deduct it.

I've seen the invoices and it looks like it is within CIS to me (labour only and for construction), if it was just one customer that wasn't deducting it I'd assume they didn't realise, but it is several, so I'm wondering if I'm missing something.

I'm going to get the client to check with the affected customers as to why they aren't deducting CIS, but I suspect I won't get a reply till after the VAT deadline - I know the lack of CIS deduction can be a big issue, but I assume it is an issue for the contractor, not my subbie client, and the DRC rules are concerned with whether the supply is within CIS, not whether CIS was deducted.

So I'm wondering if the client is fine and all issues will fall on the contractor, assuming of course all the supplies were truly within CIS.  I realise that if the supplies are outside the CIS system the client will need to reissue invoices with VAT.

I'd welcome any guidance.

#Edit# actually I think it is only one or two customers that are not deducting CIS, and on small amounts, so perhaps not as big a worry - still going to get the client to check with them as doesn't feel correct.

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RLI
By lionofludesch
05th Nov 2021 10:00

"In a nutshell, the client is a subcontractor for a range of contractors. They have treated all their sales as within the DRC and so not added any VAT to their invoices..."

Who are "they" here ? The contractors ?

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By ImNotSureBut
05th Nov 2021 10:24

lionofludesch wrote:

"In a nutshell, the client is a subcontractor for a range of contractors. They have treated all their sales as within the DRC and so not added any VAT to their invoices..."

Who are "they" here ? The contractors ?

The client has made that decision when they issued their invoice, I assume the customer agrees or they would have kicked up a fuss (which I'm sure I would have been pulled into).

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By rmillaree
05th Nov 2021 10:46

"I assume the customer agrees or they would have kicked up a fuss (which I'm sure I would have been pulled into)."

I think the problem here is that many people still don't have the foggiest how any other this works and will be bluffing it. so whilst they may not have disagreed at the time - i wouldnt be surprised if they kick up a fuss later - if their tax advisors will later on say thats all wrong you need to go back and do it properly.Probably slightly unlikely to happen practicably speaking - but i know for fact i have told a few clients to go and do A and they have gone off and done either B C or D ! as its all too complexfor them to workout (or they cant be bothered or simply default back to how they used to do it)

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Replying to ImNotSureBut:
RLI
By lionofludesch
05th Nov 2021 11:31

ImNotSureBut wrote:

The client has made that decision when they issued their invoice, I assume the customer agrees or they would have kicked up a fuss (which I'm sure I would have been pulled into).

So "they" is singular in this instance.

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By ImNotSureBut
05th Nov 2021 11:57

lionofludesch wrote:

ImNotSureBut wrote:

The client has made that decision when they issued their invoice, I assume the customer agrees or they would have kicked up a fuss (which I'm sure I would have been pulled into).

So "they" is singular in this instance.

It's a knee-jerk 'not wanting to misgender' choice of words :)

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Replying to ImNotSureBut:
RLI
By lionofludesch
05th Nov 2021 12:02

ImNotSureBut wrote:

lionofludesch wrote:

ImNotSureBut wrote:

The client has made that decision when they issued their invoice, I assume the customer agrees or they would have kicked up a fuss (which I'm sure I would have been pulled into).

So "they" is singular in this instance.

It's a knee-jerk 'not wanting to misgender' choice of words :)

So I gather. But, at first, I genuinely thought "they" referred to the contractors.

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By rmillaree
05th Nov 2021 10:24

"In a nutshell, the client is a subcontractor for a range of contractors. They have treated all their sales as within the DRC and so not added any VAT to their invoices, however some of the payments are received gross without CIS being deducted. I queried this with them and they said all the supplies were within CIS, but the contractor doesn't always deduct it."

Both parties should agree in writing whether work is DRC or not - this should always be led by the customer as they are the ones making the decisions .
One should be particularly careful where customers may be end user sometimes and not end user other times.

There is probably the default presumption that DRC would apply but i would not want to be arguing to a vat officer who might turn up and say "other party has confirmed to us DRC does not apply - so can we have our output vat please.

So before offering any advise i would want to see exactly wha tthe customer is saying with regard to each specufic peice of work as tgo whetehr DRC applies or not.

Once thats sorted everything else falls into place - as to whether the contractor should or should not have been deducting cis - thats not really your client (the subcontractors beef) - as longs as its confirmed to be DRC then if the contractor does or does not deduct tax thats their problem alone and not the subcontractors.

It probably in sensible to flag up the issues though as there is the possibility that work might not be DRC and there could be some mixup taking place- whether that be intentally within thecustomer (and their advisor?) or between customer and subcontractor.

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By Duggimon
05th Nov 2021 11:24

Too many assumptions being made all over the place here. These people are construction workers so you should make no assumptions that they might know something you don't. If they came in to your house and you asked them to knock a wall down you'd be mighty annoyed if it turned out they just assumed you knew whether it was structurally important or not and demolished your house.

If things are not as they should be then the sooner it is sorted the better for everyone as the problem will only grow. You need to ascertain the following, some of which you know, some of which you're currently guessing:

Is the work within CIS?
Is the work within the DRC?
Is your client registered for CIS?
Is your client registered for gross payment status?
Are your client's customers operating CIS?
Have your client's customers checked the CIS payment status of your client?
Have your client's customers provided CIS statements to your client for the deductions?

And, importantly, you will have to agree that the answers to the above are in fact correct and how things are meant to be done.

The issue with failing to deduct CIS tax when it ought to be deducted is likely more of a problem for your client's customers rather than your client, but that's no reason not to try and get things operating as they should.

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By Truthsayer
05th Nov 2021 15:07

This is not a problem for your client. If a contractor has failed to make a CIS deduction, it's not the subbie's problem. Ignore, and carry on.

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By OldParkAcct
07th Nov 2021 22:06

It’s the contractors decision whether the service is under CIS both for tax and VAT.

Normally it’s the other way, where the contractor is insisting something is under CIS when it’s outside the scope.

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