Subcontractor VAT

Subcontractor VAT

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My client ( construction industry ) has subcontractors working for him.

Each month they submit invoices for labour and expenses and some materials.

My client deducts 18% of the labour element and pays the balance over to the subbys. I E net labour + expenses.

Subbys are not registered for VAT

Can my client claim the VAT back on the expenses submitted ?

Further more my client has lost some receipts from the subbys. Can i still claim the payments as a expenses without the receipts ? If not how do i account for the payments ?

Any help greatly appreciated

Thanks

Anon

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By AnonymousUser
10th May 2005 11:54

Check the expenses are deductable
You don't mention what the expenses are but may I refer you to the Revenue Construction Industry Scheme booklet IR14/15 esp para 3.3
The 18% deduction is not against the labour element alone but is against the full invoice anmount less only:
CITB levy,
materials,
consumables
and plant hire costs (incl plant hire fuel)

Your client {C} should receive from his subbies {S/C} an invoice. The breakdown of that invoice will be (say) labour £180, travelling £20 and materials £30. Total value of invoice £230.
C will give S/C £194, having stopped £36 CIS
S/C will declare in his accts income of £230 less £20 travelling and £30 mats giving a net profit of £180. To claim these costs S/C will need to retain the material and other expense receipts
C will declare in his accts income of £x less S/c costs of £230. The cost of the expenses to S/C has nothing to do with C. It is just a guide for calculating how much is to be charged by S/C.
I agree with Neil regarding VAT and also that there is a great chance that what you describe suggests that the S/C may be considered by the IR to be employees.
Hope this is of help
Regards
Martin

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By theaardvark
11th May 2005 12:05

No.
Your client cannot claim VAT on the sub-contractors expenses as they are not supplies to, or for the purposes of, your client's business.

The expenses form part of the cost components of the sub-contractors supply to your client. Indeed, the separation of the expenses on the invoice is in reality artificial. It does not form a separate supply to your client but is a way of working our how much the sub-contractor charges for the work he/she is carrying out.

Hope that helps explain the position.

Regards

Paul Taylor
VATease - Celebrating 15 years of VAT Advice

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By NeilW
10th May 2005 10:17

Expenses
Technically you cannot reclaim the VAT because they have gone through the hands of a non-registered trader.

You could if the expenses were contracted for in your name, and the subbies acted as your agent. You could set up accounts with suppliers that can be operated by regular subbies. The bills then get sent straight to the prime VAT registered contractor.

The danger in doing this is that subbies that work for you a lot might end up becoming employees in the eyes of the Revenue.

The fact that the subby has lost some of his expense receipts is his problem. The only receipt you need is his invoice with the relevant split of materials and labour clearly written on it.

NeilW

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