No CIS deduction made by supplier

How do I handle this?

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Client's VAT reg business did cis work for another builder and sent a DRC invoice with a deduction of CIS at 30% which is correct.

Other business has paid without cis deduction. Apparently my client said he didn't want the 30% deduction and other party said not to worry - his acct would look the other way.

I've expressed my extreme displeasure.

The best way of sorting this out is for client to pay CIS back to supplier and then all would be magic my end.
That's probably one of my better fantasies.

How do I handle the "overpayment"? I can't show that CIS has been deducted in his tax return if it wasn't (business is a partnership).
but if I show it as an overpayment I'll never be able to get rid of it and there are VAT implications presumably.

This is a money laundering issue of course.

Replies (11)

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By frankfx
06th Apr 2023 10:14

Contractor client should write( you do the letter of course) to defaulting contractor.

Explaining that you are insisting that tax compliance should be adhered to.

As it causes too many problems for your own business.

Pointing out that the other accountant would surely understand that.

And would not want to cause any problems for all concerned.

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By Crouchy
06th Apr 2023 10:57

sadly this happens all the time, subbies won't want to rock the boat with their contractor and risk being dumped.

if CIS hasnt been deducted, it cant be DRC for VAT treatment. one option, possibly only option is to treat the sale as non CIS work, with standard VAT included at the prevailing rate, effectively the subbie is taking a VAT hit. once informed of this treatement they will be more willing to insist that the contractor deals with the CIS and payment correctly....but dont count on it!

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By doubletrouble
06th Apr 2023 10:57

Just report the gross sales the same as you usually would but with no CIS suffered, you haven’t received an overpayment you have received the correct payment but just not had any CIS deducted, if I am reading this correctly.

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Replying to doubletrouble:
By Moonbeam
06th Apr 2023 11:12

This sounds the best option, given how lazy I am. I just need to adjust the automatic entry for CIS refundable by means of a journal.
I suppose it's not really money laundering as client will be paying tax on the extra amount.
It's really a matter of timing.

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Replying to Moonbeam:
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By rmillaree
06th Apr 2023 11:26

As a one off I would go with flow as far as contractor is concerned (what they ahev confirmed in writing) for past events albeit i would be having stern word with client along lines outlined below - this should never be in doubt when subcontractor bill or male aplciation for payment.

I would always make clear to client though both parties MUST confirm in writing whether work is within cis and whether its reverse charge. Make clear to client if they do not confirm treatment - that may cause them issues later eitehr of which could result in them having to fork out cash. Eg if vat office say work is standard rated as its not cis - or contractor later demands that they pay back tax that should have been deducted. Its particular risk with non cis work if client doesnt bill output vat that they may have to explain that situation to the vat office. I would go so far as recommending they never proceed if the vat doesnt follow the vat flowchart (noote there is provison for both parties to agree some non cis work could be reverse charge so it is messy. Be clear it should never get to the biling apllication for payment status without thewse items being thrashed out - normally starting point would subconbtractor be ask if cis aplies and if it does are they end user 0 if not reverse charge applies. If work is non cis and customer thinks vat should not be charged ask them to explain why. If the questions are correctly done at the start that avoid all the later nuclear situations.

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Replying to rmillaree:
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By frankfx
06th Apr 2023 13:43

rmillaree wrote:

As a one off I would go with flow as far as contractor is concerned (what they ahev confirmed in writing) for past events albeit i would be having stern word with client along lines outlined below - this should never be in doubt when subcontractor bill or male aplciation for payment.

I would always make clear to client though both parties MUST confirm in writing whether work is within cis and whether its reverse charge. Make clear to client if they do not confirm treatment - that may cause them issues later eitehr of which could result in them having to fork out cash. Eg if vat office say work is standard rated as its not cis - or contractor later demands that they pay back tax that should have been deducted. Its particular risk with non cis work if client doesnt bill output vat that they may have to explain that situation to the vat office. I would go so far as recommending they never proceed if the vat doesnt follow the vat flowchart (noote there is provison for both parties to agree some non cis work could be reverse charge so it is messy. Be clear it should never get to the biling apllication for payment status without thewse items being thrashed out - normally starting point would subconbtractor be ask if cis aplies and if it does are they end user 0 if not reverse charge applies. If work is non cis and customer thinks vat should not be charged ask them to explain why. If the questions are correctly done at the start that avoid all the later nuclear situations.

Excellent reply, thank you.

Education Education Education.

Comes with a price tag or, sadly, a vacant gaze accompanied by a yawn.

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Replying to rmillaree:
By Moonbeam
06th Apr 2023 14:45

Of course. Would this client take any notice of this advice?
Absolutely not.

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RLI
By lionofludesch
06th Apr 2023 12:03

Not your problem, Moonbeam.

Your client is neither better nor worse off in the long run.

He's compliant with his side of the deal.

Don't charge him anything just to suit your sense of justice. If you do take the action you suggest, it must be at your own cost.

Now - if you were acting for thed other fella, that'd be a different matter

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Replying to lionofludesch:
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By Paul Crowley
06th Apr 2023 12:45

Spot on
No tax issues
The deduction is there because the subcontractors had a habit of not declaring income and not paying tax
At all times I would use the word subcontractor, NEVER supplier
A supplier dumps materials at site entrance and does no work

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By Truthsayer
07th Apr 2023 15:52

You don't need to worry about it. Your client can leave the invoice as it is, as it was correctly issued under DRC. The fact that the contractor wrongly paid them gross is not your or your client's problem (except to the extent that your client solicited it, which opens up a minuscule possibility of being found out and penalised). It is the contractor's job to apply the correct CIS treatment, regardless of what the subbie may demand.

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By Moonbeam
07th Apr 2023 17:48

Thank you everyone for your thoughtful replies.
I can now move on to the next ghastly nightmare!

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