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CIS sub contractor paid gross by mistake

CIS sub contractor paid gross by mistake

I'm new to CIS, I swore I'd never take on a client involved in it from either side, but here I am.

I have a new client who set up a company engaging CIS sub contractors. Later they engaged my firm and now I dig into it I discover their first sub contractor invoice (December 2017) was paid gross before they worked out what their obligations were for CIS. What is correct way to sort this out? Do we just amend the cis return (originally filed blank) and state no tax was deducted? Will that lead to penalties? Trying to claw back the cis deduction from the sub contractor now would be very difficult I imagine, and would achieve little, and my client having to gross up their cost to cover the cis deduction seems a harsh penalty.

Many thanks..

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12th Oct 2018 09:37

Happens quite a lot but I've never, ever known HMRC take the point as long as it's an isolated case.

Strictly, your client is due to pay the tax he should've deducted plus a £100 penalty. No need to gross up - it's 20% (or 30%) of the original invoice, less materials if any.

Just get it right for the future.

Thanks (2)
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to lionofludesch
12th Oct 2018 09:47

Many thanks. Glad to hear it happens quite a lot. There seems little guidance about it online! Not quite sure what you're suggesting we do though. Do we amend the return to include the gross payment with zero tax deducted? Or does my client need to do the bit beginning "strictly" and pay this guy's tax for him?

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12th Oct 2018 09:53

Strictly, HMRC should still get their pound of flesh via the subby's SA, and so whilst I'd let them know, I wouldn't take any corrective action unless they insisted.

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to SteLacca
12th Oct 2018 10:07

Thanks for this. Sounds like I'm panicking unnecessarily. How do we "let them know" though? By amending the return and entering zero deduction? That seems easy enough to do - much easier than phoning/writing to them!

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to whatdoyoumeanwashe
12th Oct 2018 10:38

That would probably do it. That way, HMRC have a record of the payment to the subcontractor, and your client hasn't concealed anything.

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12th Oct 2018 10:47

I'd overlook it.

Just tell the client what might happen. Just in case it happens. And to stop him getting blasé about it.

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12th Oct 2018 11:06

Thanks both. A nice twist I've just spotted. The invoice says "supply only"! It gives no split of materials vs labour, implying it's 100% materials. According to my client, that's stretching the truth, but it would be at least 80% materials so the CIS wouldn't be nearly as much as I feared.

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to whatdoyoumeanwashe
12th Oct 2018 11:17

Ah, right. You really are new to this.

No CIS tax deductible from supply only invoices.

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to lionofludesch
12th Oct 2018 11:32

Yes I am, but I hadn't seen the invoice when I asked the question originally. And I find it a bit tenuous to call screeding a floor "supply only"....

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