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Contractor deducted too little CIS

Contractor deducted too little CIS

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I am doing a 2010/11 tax return for a new client. A contractor for whom he has worked has been making a hash of the CIS deductions process. For example, if he was paid £1,000 in a fortnight, the contractor has advised that that the figure is after deducting £200, when of course it should be £250. This has happened over 20 or 30 weeks so the tax involved is not insignificant. There is a separate issue of complying with the rules for CIS returns etc, but in terms of a tax return I am torn between advising my client that his turnover is £1,250 or £1,200. In other words should my client A. State his income is £1,250 and show CIS deducted of £250 (even though he knows the contractor has only paid over £200), or should he B state his income is £1,250 and show CIS deducted of £200 (in which case he has a shortfall in tax paid and has to make up the difference) or does he C. State his income is £1,200 and show deductions of £200. I have been leaning towards Option B (mainly because if he goes for Option A this may lead to an enquiry and he would like to receive future work from the contractor) but would genuinely welcome opinion on this matter.

Bill

Replies (5)

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By ShirleyM
26th Jan 2012 21:18

I would state the actual figures

You have documentation to prove the £1250 and deduction of £200. You don't have anything to justify the £250. I doubt it will raise any eyebrows at HMRC, as they will just assume there were some materials, but I would put a note in the white space just to avert a possible enquiry and to inform HMRC that the contractor isn't calculating CIS deductions properly.

Many contractors get the CIS deductions wrong, or don't give statements at all.

Thanks (1)
By petersaxton
26th Jan 2012 21:59

Beware

What should have been paid? Was the work agreed at £1,250? They shouldn't be agreeing a figure net of deductions. I don't think there's a right answer for this. The two businesses should come to an agreement after discussing it with accountants. Maybe the accountants should discuss it.

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Steve Edwards
By stevo5678
26th Jan 2012 22:28

The 100% technically correct answer is to obtain the monthly CIS statements that the contractor should of given your client.  If you can't get them then the next best thing is a logical guess.  You need to work backwards from what he received at the normal 20% deduction.  So £1000 received x 100/80 = £1250.  In the absence of the proper paperwork this is the only reasonable assumption you can make (IE the normal 20% deduction has been applied).

 

Seperately do you know for sure that CIS has been deducted as your client does not have the CIS statements form the contracter he was working for? At the end of the day though, he must agree the numbers before signing off.

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By ShirleyM
27th Jan 2012 07:28

Subbie Invoice

Hmmmm... why the speculation over gross pay?

I assumed, possible incorrectly, that the subbie invoiced the contractor for the gross pay, and the contractor had miscalculated CIS Tax and that the 'advice' was the monthly CIS statement!

Is your subbie at fault by not providing invoices, as well as the contractor not providing CIS statements? Without documentation it is just speculation as to who is right!

At least with an invoice you could match off the receipt and calculate the CIS deducted, without it you are hog-tied.

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By willkyne.blueyonder.co.uk
27th Jan 2012 10:16

Contractor deducted too little CIS

Thank you for all your replies. My sub contractor recognises that he is as much at fault as the contractor on this matter, by non insisting on certificates of deduction. I was struggling to see the wood for the trees here, but am now clear that there was an agreed rate for the work done which is the basis of the gross income. The fact that too little CIS has been deducted has been to the benefit of the subcontractor and he now has to make up this difference in his tax return.

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