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CIS self-billing - can vendors deduct their fees?

Vendor reducing taxable income or shortfall on taxes?

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Could I please canvass some views.

I have a VAT registered (FRS) subcontractor subject to CIS.  Their first self-billing tax invoice administered by Guild Resources Ltd looks like this

                                                           £ 

Services Provided  (Labour only)     180

Our fee                                             (12)

Vat on our fee                                   (3)

Total (exc. VAT)                              165  

VAT (output) @ 20%                      33

Total (Inc. VAT)                             198

Less CIS tax @ 20%                      (33) 

Amount due                                   165

Our fee is an administrative charge the subcontractor suffers for the paying company to raise invoice and pay them.

My query is have they applied their own fees prematurely and should have instead applied their own charges after taxes (VAT and CIS). This may have led to a shortfall in VAT and CIS whereby my computation would be

                                                           £ 

Services Provided  (Labour only)     180  

VAT (output) @ 20%                      36

Total (Inc. VAT)                             216

Less CIS tax @ 20%                      (36) 

Total (after VAT & CIS)                  180

Our fee                                             (12)

Vat on our fee                                   (3)

Amount due                                   165

.........................................................................

The self-bill does not account for VAT and CIS correctly due to the order on how their own fees have been applied.  They have effectively reduced the amount chargeable to VAT and CIS taxes (the shortfall).  It may seem trivial in isolation however expecting these on scale, so what do contributors think which way is correct?

If I am correct and they are wrong, this causes a reconciliation issue when report CIS & VAT (due to shortfall in collected VAT) to HMRC on self-assessment.

I far as I can tell CIS is a tax on labour only and there is nothing permitted that reduces the taxable income that CIS is applied to on an invoice.

I did call the vendor, Guild Resources Ltd, they say we been doing this for 22 years without any query - hard to prove if that is correct - am I missing something here?

Any pointers would be appreciated.

 

 

 

 

Replies (4)

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RLI
By lionofludesch
18th Nov 2020 12:57

Well, firstly, look at the contract to see exactly who is engaging whom.

But, prima facie, I agree with you. Subject to anything in the contract.

Ask the agent if they'd mind if you passed their figures to HMRC for a review. This often prompts deeper thought.

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By Truthsayer
18th Nov 2020 14:21

You're almost certainly right, and the contractor is almost certainly wrong. Fools often say "We've been accounting for it this way for years, so it must be right". It just means HMRC are bad at picking things up.

By the way, Guild Resources Ltd have only existed since 2015......

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By Ashley Hughes
18th Nov 2020 15:01

Thank you both. I shared both of your sentiments exactly when posted this.

Since posting this have spoken further with their in-house tax advisor and the finer detail is revealed.

There is a main contractor, who incidentally and I made the point to them, not stated in my subcontractor contract, to which Guild are referred the subcontractor from.

The £180 is in fact this main contractor charging Guild less their own admin fee leaving the turnover of my subcontractor at £165. Therefore, the self-bill is correct on tax accounting front although highly confusing on the presentation front. I ran the self-bill across a few peers and all agreed with us, initially, hence the query raised.

Even though the self-bill is addressed to my subcontractor the top line 'services provided' is unrelated subcontractor. In summary, top half relates to arrangement between main contractor and contractor, bottom half the subcontractor.

Just relieved it is a misunderstanding brought about by convoluted billing.

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Replying to Ashley Hughes:
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By frankfx
18th Nov 2020 17:04

Why not forward the following to the Guild.
Some humour may persuade them to change the embedded habits

Mad Hatter's Tea Party

Then you should say what you mean," the March Hare went on.

"I do," Alice hastily replied;
"at least-at least I mean what I say-that's the same thing, you know."

"Not the same thing a bit!" said the Hatter.

"Why, you might just as well say that 'I see what I eat' is the same thing as 'I eat what I see'!"

"You might just as well say," added the March Hare,
"that 'I like what I get' is the same thing as 'I get what I like'!"

"You might just as well say,"

added the Dormouse, which seemed to be talking in its sleep,

"that 'I breathe when I sleep' is the same thing as 'I sleep when I breathe'!"

"It is the same thing with you." said the Hatter.
Oh so true!!!!!!

Lewis Carroll, Alice in Wonderland

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