I currently work for Construction Industry Solutions Ltd (known as COINS), the leading provider of integrated business software to the construction industry.
My main area of responsibility within COINS currently is statutory compliance (particularly CIS and VAT). I am also starting to look at issues around environmental accounting.
As well as working for COINS, I chair the Construction Industry Special Industry Group within BASDA. I also represent BASDA on the HMRC CIS Operational Forum.
HMRC Don't update all the pages on their website Richard,
Sadly, the page you quote doesn't appear up to date. It is consistent with VAT 700 (dated April 2002) but not with VAT700/21 (dated December 2007).
This is one thing that makes it so hard to work out what rules we should be complying with!
Certain rules on what constitutes a valid VAT invoice have changed but the main VAT Guide VAT700 has not been updated to reflect these changes. Even worse - there is nothing on the website pages based on VAT700 to indicate that there have been changes.
Thanks for that. I think that should give adequate explanation, even if the legislation and guidance does not spell things out as clearly as one might like.
Yes the customer and suppliers are all within the UK. Do you have any references within HMRC Guidance or Legislation stating that the customer must use the Sterling figures which the supplier is obliged to put on the invoice? Although this appears to be the intention, the only reference I can find is the one given in my question, which applies only to Euro transactions, not other currencies.
As I am sure you will appreciate, clients somtimes need chapter and verse before they will accept that they have to do something!
Industry Practice I cannot claim to be an expert on the legal position here. However, as a software provider to the construction industry (including around two hundred UK contractors and house builders), I can confirm the normal industry practice.
The CITB levy is invariably deducted after VAT (so that the VAT amount is not reduced).
Not all contractors make the deduction from their subcontractors. Some, as suggested by other respondents, try to make the deduction "if they can get away with it" but will stop deducting from any subcontractor who complains loudly enough.
In your "Smith & Jones" boiler fitting scenario there is no CIS issue as you are a private householder and thus exempt from operating CIS.
However, if you paid the total to Smith and he then paid Jones the situation would be very different. Smith would then have to operate CIS in respect of his payment to Jones - assuming that Jones is also acting as a self-employed subcontractor. Or, if the nature of the relationship between Smith and Jones is one of employment, then he would have to operate PAYE.
Thus direct payment from the householder to each individual tradesman and supplier is helpful from a CIS perspective as well as for VAT.
Construction Work and Employment Status Check There are really two questions here:
Firstly: does the work fall within the scope of "Construction Work" as defined by HMRC with regard to the CIS scheme? This is clearly laid out in the CIS340 booklet.
Secondly: is the relationship between the electrician and his labourer one of employment or self employment? HMRC provide the Employment Status check tool to help with this.
For a construction business the size of the operation makes no difference: a one-man-band has to operate the scheme just as a large company would. For other non-construction businesses who also spend money on construction there is a de-minimis of £1 million per annum so that only those who have a significant construction spend are inluded within the scope of the CIS scheme. However, for businesses within the construction sector there is no de-minimis and all are included regardless of size.
As pointed out by others, whether the construction work is new build or not makes no difference. The exemption for private householders only applies for payments by them to the contractors they employ - it does not create any exemption for payments to subcontractors employed by their contractors.
Double Entry for this is possible To record the necessary "sale" for this in your double entry accounts (without specialist software) just requires creating a couple of extra accounts with entries as follows:
Then include the first of these accounts in your box 6 calculation (ignoring the second account). For all other reporting, net off these two accounts.
This may seem artificial and contrived (but then so does the legislation). Provided the number of transactions is low this should get round the problem. If the number of transactions is significant then you may want to look at a suitable package - see www.basda.org for details.
Try Sage Construct or COINS For a relatively small business, your first option to look at should be Sage Construct as that will not involve replacing your financials system.
If you feel that you have outgrown Sage Construct then you could consider COINS which offers a fully integrated solution for all types of medium to large construction businesses.
Coins software for Construction Companies We provide fully integrated solutions for medium to large construction companies. This could solve your integration problems but would involve replacement of all your systems.
My answers
HMRC Don't update all the pages on their website
Richard,
Sadly, the page you quote doesn't appear up to date. It is consistent with VAT 700 (dated April 2002) but not with VAT700/21 (dated December 2007).
This is one thing that makes it so hard to work out what rules we should be complying with!
Certain rules on what constitutes a valid VAT invoice have changed but the main VAT Guide VAT700 has not been updated to reflect these changes. Even worse - there is nothing on the website pages based on VAT700 to indicate that there have been changes.
No wonder everyone gets confused!!!
Thanks
David,
Thanks for that. I think that should give adequate explanation, even if the legislation and guidance does not spell things out as clearly as one might like.
Do you have references for this?
Richard,
Thanks for your response.
Yes the customer and suppliers are all within the UK. Do you have any references within HMRC Guidance or Legislation stating that the customer must use the Sterling figures which the supplier is obliged to put on the invoice? Although this appears to be the intention, the only reference I can find is the one given in my question, which applies only to Euro transactions, not other currencies.
As I am sure you will appreciate, clients somtimes need chapter and verse before they will accept that they have to do something!
Does anyone know an accountant light bulb joke?
I don't - but as I work for a software company:
Q: How many software engineers does it take to change a light bulb?
A: None - it's a hardware problem
Industry Practice
I cannot claim to be an expert on the legal position here. However, as a software provider to the construction industry (including around two hundred UK contractors and house builders), I can confirm the normal industry practice.
The CITB levy is invariably deducted after VAT (so that the VAT amount is not reduced).
Not all contractors make the deduction from their subcontractors. Some, as suggested by other respondents, try to make the deduction "if they can get away with it" but will stop deducting from any subcontractor who complains loudly enough.
No CIS Issue
Sherman,
In your "Smith & Jones" boiler fitting scenario there is no CIS issue as you are a private householder and thus exempt from operating CIS.
However, if you paid the total to Smith and he then paid Jones the situation would be very different. Smith would then have to operate CIS in respect of his payment to Jones - assuming that Jones is also acting as a self-employed subcontractor. Or, if the nature of the relationship between Smith and Jones is one of employment, then he would have to operate PAYE.
Thus direct payment from the householder to each individual tradesman and supplier is helpful from a CIS perspective as well as for VAT.
Jim Etherton
www.coins-global.com
Construction Work and Employment Status Check
There are really two questions here:
Firstly: does the work fall within the scope of "Construction Work" as defined by HMRC with regard to the CIS scheme? This is clearly laid out in the CIS340 booklet.
Secondly: is the relationship between the electrician and his labourer one of employment or self employment? HMRC provide the Employment Status check tool to help with this.
For a construction business the size of the operation makes no difference: a one-man-band has to operate the scheme just as a large company would. For other non-construction businesses who also spend money on construction there is a de-minimis of £1 million per annum so that only those who have a significant construction spend are inluded within the scope of the CIS scheme. However, for businesses within the construction sector there is no de-minimis and all are included regardless of size.
As pointed out by others, whether the construction work is new build or not makes no difference. The exemption for private householders only applies for payments by them to the contractors they employ - it does not create any exemption for payments to subcontractors employed by their contractors.
Double Entry for this is possible
To record the necessary "sale" for this in your double entry accounts (without specialist software) just requires creating a couple of extra accounts with entries as follows:
CR: Notional Reverse Charge Sales 100
DR: Reverse Charge Sales Contra 100
Then include the first of these accounts in your box 6 calculation (ignoring the second account). For all other reporting, net off these two accounts.
This may seem artificial and contrived (but then so does the legislation). Provided the number of transactions is low this should get round the problem. If the number of transactions is significant then you may want to look at a suitable package - see www.basda.org for details.
Jim Etherton
Try Sage Construct or COINS
For a relatively small business, your first option to look at should be Sage Construct as that will not involve replacing your financials system.
If you feel that you have outgrown Sage Construct then you could consider COINS which offers a fully integrated solution for all types of medium to large construction businesses.
For further information see www.coins-global.com or email me on [email protected].
Jim Etherton
Senior Product Manager
COINS
Coins software for Construction Companies
We provide fully integrated solutions for medium to large construction companies. This could solve your integration problems but would involve replacement of all your systems.
Have a look at our website for more details: www.coins-global.com
Jim Etherton
Senior Product Manager
COINS UK