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CIS Subcontractors & Van Hire

Offering van hire to subcontractors - tax implication

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Hi,

First post.  I recently started a new position (I'm a Commercial Manager) for a small/medium building company and have pushed for the company to adopt some new accounting software to make all commercial activities/supplier payments etc more efficient.

I have stumbled across a couple of issues and don't feel I'm qualified or in the right place to challenge/I don't have direct access to the company's accounting firm to ask them directly, so wanted to check here before taking up the issue with my superiors.

Our new accounting software will allow better tracking and CVR/profit/loss reporting so instead of subcontractor payments being journaled on the system, they'll be put on as proper transactions broken down into works items, rates and quantities.

Whilst going through each department's workflows I have spotted that my company offers its labour only (CIS) subcontractors use of company vans.  These are owned/purchased via asset finance.  I haven't worried about IR35 implications as the subcontractors can and do work for others, send subsitutions etc.  The vans are charged out at £50 per week and payment is taken via deduction on weekly payments to the subcontractor, as a sort of contra-charge.  The subcontractor is not responsible for any wear and tear, vehicle servicing or any costs other than fuel/screen wash/AdBlue and general care such as washing and checking tyres, fluid levels etc.  They are inspected semi regularly and charged for any damage.

My concern is that by charging this way we're not deducting CIS for the van hire, nor are we charging VAT.  Isn't it HMRC/the subcontractor's accountant/the subcontractor's self-assessment that determines whether it's deductable or not?  Shouldn't we be treating the van hire as a completely separate element of work, i.e. invoicing & taking payment separately for the van hire?  Does this affect the accounting we do for the van as an asset? I.e. now we buy a van on asset finance and calculate depreciation every month.  On sale, we create profit/loss figure based on sale price vs depreciated 'books price' of vehicle.  Does the fact that we hire them out have any bearing on this?  What's the tax implcations for my company?  Will the payments subcontractors make need to go into a profit & loss account for each van?

I can't help but think my company is in hot water and I want to politely try and protect them or at least let them know it's not right, if that is the case.

I gather there may be insurance implications etc and am making my own checks on that so only looking for accounting advice, thanks (it's complicated enough!).

Thanks.

Replies (31)

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By Paul Crowley
27th Oct 2021 14:29

Do you show the van hire separately?
Are cis reports showing the the figures net of van hire?

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Replying to Paul Crowley:
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By mrsimon
27th Oct 2021 14:50

Paul Crowley wrote:

Do you show the van hire separately?
Are cis reports showing the the figures net of van hire?

No and yes.

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Replying to mrsimon:
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By Paul Crowley
27th Oct 2021 15:43

Then I think there is a problem
I also think VAT needs to be charged
But I would leave consideration of domectic reverse charge to others

The deduction of hire should be from net
What happens if the subbie does not have any work for a week?

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Replying to Paul Crowley:
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By mrsimon
27th Oct 2021 15:54

Paul Crowley wrote:

Then I think there is a problem
I also think VAT needs to be charged
But I would leave consideration of domectic reverse charge to others

The deduction of hire should be from net
What happens if the subbie does not have any work for a week?

Depends who he is and the circumstance. The unwritten rule has been to accrue/charge double the following week but in practice it often doesn't happen.

Deduction from net - sorry I'm not an accountant - you're saying do the labour, deduct CIS, then charge the hire with VAT on? How about the rate charged? I don't know for sure due to incomprehensible data but I'm pretty sure the vans cost us more than that - do we have to charge a competitive market rate?

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Replying to mrsimon:
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By Paul Crowley
27th Oct 2021 16:19

I would look to get what is happening now sorted before worrying about whether the hire pricing is correct
HMRC could interpret what you are doing as charging £50 inclusive of VAT. If so the output VAT is wrong.
How would the accountants for the subcontractors know what is really happening?

Pass that item upwards as a discrete item that the external accountants should be advising on.
My guess is that the accountants have no idea that the company is charging van hire to its subcontractors

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Replying to Paul Crowley:
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By mrsimon
02nd Nov 2021 12:29

Paul Crowley wrote:

Pass that item upwards as a discrete item that the external accountants should be advising on.
My guess is that the accountants have no idea that the company is charging van hire to its subcontractors

Are you effectively saying keep doing what we're doing now, but show it on statements so that subcontractors' accountants can deal with appropriately? I.e. pass the book?

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Replying to mrsimon:
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By Paul Crowley
02nd Nov 2021 12:56

NO
Do not keep doing what you are doing now
Van hire is not a valid hidden set off

Get that problem, together with the VAT issue sorted soonest with management passing the query to the company accountants first

Leave the idea of whether subcontractors are paying enough van rent until first problem is resolved
Van hire should be subject to VAT that is already a 20% Problem

When replying on this platform best to tick the thanks button so that the person you reply to gets an email notification
They will often then look and spot your reply

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Replying to Paul Crowley:
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By mrsimon
02nd Nov 2021 12:56

Paul Crowley wrote:

NO
Do not keep doing what you are doing now
Van hire is not a valid hidden set off

Get that problem, together with the VAT issue sorted soonest with management passing the query to the company accountants first

Leave the idea of whether subcontractors are paying enough van rent until first problem is recolved
Van hire should be subject to VAT that is already a 20% Problem

When replying on this platform best to tick the thanks button so that the person you reply to gets an email notification
They will often then look and spot your reply

OK thanks - didn't think that was what you were saying, just needed it crystal clear.

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Replying to mrsimon:
RLI
By lionofludesch
02nd Nov 2021 13:24

mrsimon wrote:
.....pass the book?

https://en.wikipedia.org/wiki/Buck_passing

Homonyms, eh ?

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Replying to lionofludesch:
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By mrsimon
02nd Nov 2021 13:33

lionofludesch wrote:

mrsimon wrote: .....pass the book?

https://en.wikipedia.org/wiki/Buck_passing

Homonyms, eh ?

Thanks for that. Lol.

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Routemaster image
By tom123
27th Oct 2021 14:47

I am fairly sure your vehicle insurance or finance agreement will not cover hire & reward - so you may want to check that with your insurer and finance provider.

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Replying to tom123:
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By paul.benny
27th Oct 2021 15:32

TBF, the OP did say s/he's already aware of those considerations

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By tom123
28th Oct 2021 09:02

OK, I see that now. Just that, so often, Aweb just looks at tax treatment of something.

Having worked in industries where motor accidents have been 'regular' the insurance would always be my first issue, rather than tax.

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Routemaster image
By tom123
27th Oct 2021 14:47

I am fairly sure your vehicle insurance or finance agreement will not cover hire & reward - so you may want to check that with your insurer and finance provider.

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paddle steamer
By DJKL
27th Oct 2021 15:09

What about vat?

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Replying to DJKL:
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By Leywood
27th Oct 2021 15:33

Im still trying to get past the part that the commercial manager instigated the use of new accounting software!

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Replying to Leywood:
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By mrsimon
27th Oct 2021 15:42

Leywood wrote:

Im still trying to get past the part that the commercial manager instigated the use of new accounting software!

Me too. It's pretty broken here and material invoices just get posted with no easy way of viewing what spend is for different things (everything "VARIOUS"), hence it's impossible for me to do my job/do CVR. Deliveries don't get checked/get blindly signed for etc and on the whole there's just no control. To put it bluntly, money p1ssing out all over the place. The lack of any meaningful historical data makes pricing future work almost impossible.

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Replying to mrsimon:
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By Leywood
27th Oct 2021 17:02

I am taking a wild guess that you have no internal Accountant/FD and are relying on staff who are not trained/qualified to do anything more than the bare bones bookkeeping?

You need to try to have a discussion with whoever is running your internal accounts department, alongside your external Accountants. Or management team above you to get everyone on board with the idea that you need a fuller review and not just some new software. (Lets hope you have the right software!)

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Replying to Leywood:
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By Paul Crowley
27th Oct 2021 21:16

One of my clients uses redsky to get costings to contracts

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By mrsimon
28th Oct 2021 09:20

Paul Crowley wrote:

One of my clients uses redsky to get costings to contracts

Historically the company has just used Sage and had departments for contracts. The new one is something similar to redsky (I think it's a relatively small outfit so don't want to name).

I'm being battered with resistance at the minute because the P/L staff will actually have to input more detail when posting invoices, never mind changing policy. Everyone at the moment is convinced I've made a huge mistake and we'll need ten times the staff to do the same thing we did before when the software was designed to save time/resource. This may be true, but it isn't because the software is no good - it's because the current way we do things is so useless.

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Replying to mrsimon:
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By Leywood
28th Oct 2021 12:21

The staff could easily have added more detail into sage. I know a fair few developers who used sage with no issues. Agree the staff just sound like they being extremely lazy, but Im sure you are getting pushback from the staff because they dont understand the new software as well. Change leads to unrest. You need to overcome those barriers, but without at least one decent finance bod behind you then you will struggle if you dont know the accounting side.

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Replying to Leywood:
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By mrsimon
02nd Nov 2021 12:34

Leywood wrote:

The staff could easily have added more detail into sage. I know a fair few developers who used sage with no issues. Agree the staff just sound like they being extremely lazy, but Im sure you are getting pushback from the staff because they dont understand the new software as well. Change leads to unrest. You need to overcome those barriers, but without at least one decent finance bod behind you then you will struggle if you dont know the accounting side.

Granted I'm not accounts trained but I can see the limitations of Sage - it just isn't construction specific enough. In this game there's a similar argument raging on with project planning - there's Asta Powerproject and MS Project - in theory MS is fine but in practice it's too generic and simply isn't good enough.

Separate nominal ledger for every department springs to mind i.e. differing cost structure per contract. With Sage we couldn't get granular enough.

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paddle steamer
By DJKL
02nd Nov 2021 13:05

There used to be add ons like job costing and CIS for construction entities construction with Sage. I did not end up using it due to cost, I used Access Accounting with job/project costing instead,albeit that was limiting as did not deal with subcontractor paperwork and I was still completing paperwork for them using a hand filled pro forma (we did not have that many)

You certainly ought to be able to source something that deals with all of your requirements.

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RLI
By lionofludesch
27th Oct 2021 15:35

Are your subcontractors essentially charging a lower rate of pay in return for free use of a van ?

I think the problem is that they're paying £50 a week however many hours they work or at what rate they charge. It's a bit of a sham and it'll inevitably come back to bite you somewhere down the line.

As Tom says, you need to make sure the insurers are fully aware in the most minute detail of what you are doing. Offences could be being committed here if you're not entirely open.

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Replying to lionofludesch:
paddle steamer
By DJKL
27th Oct 2021 15:43

Certainly has some issues re varying vat rates for different building works, reverse charge, etc, these vehicle rentals need treated as a distinct activity otherwise chaos will ensue.

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Replying to lionofludesch:
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By mrsimon
27th Oct 2021 15:45

lionofludesch wrote:

Are your subcontractors essentially charging a lower rate of pay in return for free use of a van ?

I think the problem is that they're paying £50 a week however many hours they work or at what rate they charge. It's a bit of a sham and it'll inevitably come back to bite you somewhere down the line.

As Tom says, you need to make sure the insurers are fully aware in the most minute detail of what you are doing. Offences could be being committed here if you're not entirely open.

Essentially, yes. How do I put it right?

Insurance/finance another matter entirely, I'm on it.

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boxfile
By spilly
27th Oct 2021 21:24

Let the subbies use the vans for free, but then reduce their day rate/price. So you’d have 2 work rates, with the normal higher one for subbies with their own vans. If the difference is substantial enough, it might spur them to change. £50 a week is way too cheap - they must think they’re in clover.
Can you sell them the vans and just keep a couple as pool vehicles?

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Replying to spilly:
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By Tax Dragon
28th Oct 2021 00:24

Two rates and the subbie can choose low rate plus van or high rate without van. I'd be amazed if that didn't make the provision of a van taxable at the difference between the two rates - subbie can hand back van and get paid more, same as now.

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Replying to Tax Dragon:
RLI
By lionofludesch
28th Oct 2021 07:15

Tax Dragon wrote:

Two rates and the subbie can choose low rate plus van or high rate without van. I'd be amazed if that didn't make the provision of a van taxable at the difference between the two rates - subbie can hand back van and get paid more, same as now.

Hmm - a bit like a benefit in kind ?

And if he uses the van 100% for business, does he get an identical deduction from his profits ?

These are murky waters that we are entering.

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Replying to lionofludesch:
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By mrsimon
28th Oct 2021 07:40

lionofludesch wrote:

Tax Dragon wrote:

Two rates and the subbie can choose low rate plus van or high rate without van. I'd be amazed if that didn't make the provision of a van taxable at the difference between the two rates - subbie can hand back van and get paid more, same as now.

Hmm - a bit like a benefit in kind ?

And if he uses the van 100% for business, does he get an identical deduction from his profits ?

These are murky waters that we are entering.

Indeed. All clear as mud. Are there any implications to the business of having a load of vans that are given to subcontractors for free?!

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Replying to mrsimon:
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By Paul Crowley
10th Nov 2021 18:04

But is it really free?
I do have clients that let the subbies use one of their vans so I do not see it as an issue
But generally it tends to be one van between 2 or 3 people

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