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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.



Replies (5)

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By lionofludesch
13th Feb 2020 16:54

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.

Thanks (2)
13th Feb 2020 17:04

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

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By SXGuy
13th Feb 2020 17:12

I agree. Utter tosh. Total value treated as received.

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By bettybobbymeggie
13th Feb 2020 18:52

Blimey, and I thought I was rubbish.

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Replying to bettybobbymeggie:
13th Feb 2020 20:07

That made me laugh. Previous providers are a mid-sized firm of accountants. I struggled to see their rationale, thank you!

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