A subcontractor has invoiced us, and I have queried his Materials element. He has responded by saying that he used a Subcontractor for a large part of the installation and that has skewed his percentage. I have thought about this, and convinced myself that the Total Net cost of his subcontractors invoices should be included in his Material element, but I cannot see anywhere in the CIS manual that shows the correct way to treat this?
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A deduction made under the Scheme should only be applied to that part of the payment not representing the direct cost of materials to the subcontractor (FA04/S61 (1))
Subcontractors are not materials.
Flemming & Son Construction (West Midlands) Ltd v HMRC
worth looking at the above case to focus the mind on HMRC expectations
Labour will never be 'materials'.
By the way Claritax books have an excellent book on CIS regulations , with a good commentary on the practicalities in the real world.
My questions would be
a. are you a contractor and, if so, why?
b. what has been supplied to you?
c. what exactly has been supplied by the other sub-contractor?
d. what exactly has been done to the raw materials to transform them into a totally different product? Unlike a fitting of a central heating system or fitted kitchen where it just involves (usually) fitting existing elements
Is your subby a Ltd Co? If yes, then he can offset the cost of CIS gainst his PAYE bill (if he employs people as well that is) If not then in normal circumstances he will have to wait until the end of the tax year to get that cost back as part of his CIS repayment. Or he can go gross status if he's eligible.
I've yet to meet a subcontractor who will happily pay any extra tax from the absolute minimum, regardless of when they can reclaim it.
Maybe not, but them's the rules. I have a subby client who also has 2 subbies himself so I know how frustrating it is.
I think you will find this helpful
https://www.accountingweb.co.uk/any-answers/cis-tax-on-goods-manufacture...