Vat Cash Accounting & CIS Deductions

When are CIS deductions accountable in VAT

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Client does vat returns on a cash accounting basis. A recent inspection has shown that CIS deductions have not been accounted for in Output figures. HMRC have charged penalties for "careless behaviour" attributing the CIS tax to each individual quarter and raised assessments. Client hasn't reclaimed or utilised the CIS tax, it is sitting in his HMRC account. Q1. As "cash accounting" in use surely vat is accountable only when client receives the monies? Q2. Is HMRC correct to attribute CIS deductions to the quarters in which they have been sufferred.

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By craig preece
26th Oct 2016 11:52

Do not like answering a question with a question but...
Give or take but I'm not 100% sure when it will be treated as received for VAT purposes.
If CIS is deducted then you have received it as it will be paid over as, effectively, a payment on account to HMRC on your behalf.
So if it was deducted from a payment received 25th September but the contractor did not pay the CIS to HMRC until 19th October which month is it received in?
Personally I'd go with September as the contractor has a legal obligation to pay it over once deducted and for tax purposes you would claim the CIS against the income it was deducted from not when/if the contractor pays it to HMRC.

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By Ruddles
26th Oct 2016 12:09

HMRC are correct

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Stepurhan
By stepurhan
26th Oct 2016 12:09

Look at it another way.

If the client had received the total amount, and set aside 20% for their tax bill, would you be asking this question? Or, if your client was the contractor, would you only claim the VAT on that portion of the subcontractor bill when the CIS was paid?

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By rememberscarborough
26th Oct 2016 15:22

I know it's hard but, although only one payment is involved, there are two different transactions going on here with two different sets of rules.

The simple solution should be to ask for a remittance/breakdown of each payment because without it you've no idea of how much VAT has been paid or how much tax has been deducted. Also, speaking as a main contractor, there's a reasonable chance of retention being involved.

Anyone who deducts CIS tax has a legal obligation to notify the subcontractor of what deductions have been made so there should be a paper trail to sort all this out.

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RLI
By lionofludesch
26th Oct 2016 18:02

Afraid you get the VAT in full so there's not much excuse for not paying it over.

This is a case where I'd be asking for a suspension of penalties, though. It's easy to see how the client could be confused into thinking he'd received a part payment. I'd be confident of getting a suspension agreed and I'd be extremely disappointed if I didn't.

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By pacta
26th Oct 2016 22:45

What is hard? You bill £120 incl VAT. You receive £100, £20 being CIS deduction from your net. You owe £20 in VAT and can claim credit against income tax or ct at year end for the £20 CIS.

Only possible defence is if YOU (not your client) complete the returns then they may be considered to have taken reasonable care in appointing a professional. Leaves you open for being a numpty though.

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