Hi,
Seeking some clarity please.
Onboarded a new client: Stonemasons, VAT registered, mix of customers, (private clients and 3 contractors).
Client is a registered CIS sub-contractor who is not yet entitled to apply for Gross status. They currently have 20% deductions made for all their sub-contracting work. The previous provider has been inconsistent in their treatment of the CIS deductions for the client's quarterly VAT return.
Using an example of a gross sales invoice for £1,200 (VAT @ £200).
Treatment 1: Account for VAT using the Invoice basis. Cash received by client @ £1,000 (after 20% CIS deduction). Box 1 = £200. Box 6 = £1,000. Client has taken a £200 'hit'.
Treatment 2: Account for VAT using the Cash basis. Cash received by client @ £1,000 (after 20% CIS deduction). Box 1 = £166.67 (20% @ £1,000). Box 6 = £833.33. HMRC has taken a 'hit' (should have received £200 output VAT, only received £166.67).
The client's turnover is within the Cash Accounting Scheme limit and has always been so.
Any thoughts greatly appreciated.
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Replies (5)
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Utter rubbish, I'm afraid. The tax he's had deducted is still treated as received by him and he needs to included the whole £200 on his VAT return.
I agree with Lion
You need to think of the transaction as though he received £1,200 and then paid £200 tax to HMRC. - In reality the contractor made the £200 payment on your client's behalf.
From the contractor's point of view the invoice is paid in full
From HMRC's point of view £200 has been paid towards tax liabilities
That made me laugh. Previous providers are a mid-sized firm of accountants. I struggled to see their rationale, thank you!