My client has just started working in the construction industry so invoices are being paid less 20% under the CIS Scheme. The company is limited but not yet VAT registered.
How do I account for the deduction and how is it treated with the Inland Revenue?
When they become VAT registered I am assuming they must charge VAT on the gross amount? Is this correct?
They are about to become Gross Status but in the meantime, I have no idea what to do with these invoices!
Sorry for all the questions but I am very new to the CIS Scheme and it's a little confusing!!! Any help would be greatly appreicated!!!!
Post Gross Sales Invoice: E.g. £1,000 to Debtors Account in B/S £1,000.00 to Sales Account in P/L
The CIS calculation would be as follows:
If net sales of £1000 CIS tax deducted = 18% x £1000 = £180
Post the Sales Receipt: E.g. £1000 minus CIS deduction of £180 = £820 £820 Debit Bank Account in B/S £820 Credit Debtors Account in B/S
For the CIS amount of the invoice, i.e. £180.00, you need to credit the debtors account and debit an account set up for CIS tax. If you use Sage you could set up a new bank account solely for the CIS tax.
By doing the above you will clear down the gross debtor in the sales ledger, and have a debit balance sitting in an account to represent the CIS deducted to date.
If your client becomes VAT registered you would need to account for the VAT based on your clients gross invoice value, before CIS tax has been deducted.
hi, i thought the deduction was 20%, is it 18? Can you offset the CIS deducted against PAYE owed? What happens if there are no employees on the books so not PAYE/NI paid, what would happen with the debtor? thanks
It may need to be agreed now (this I am unsure of) but only Ltd companies can offset CIS against PAYE/NIC... not soletraders or partnerships.
If there is no PAYE/NIC then it will be against corporation tax at the year end, and if there is no corporation tax at the year end... then it can be refunded.
They don't issue CIS refunds during the year as the purpose of the tax is to ensure tax is paid over the year.
Post Gross Sales Invoice: E.g. £1,000 to Debtors Account in B/S £1,000.00 to Sales Account in P/L
The CIS calculation would be as follows:
If net sales of £1000 CIS tax deducted = 18% x £1000 = £180
Post the Sales Receipt: E.g. £1000 minus CIS deduction of £180 = £820 £820 Debit Bank Account in B/S £820 Credit Debtors Account in B/S
For the CIS amount of the invoice, i.e. £180.00, you need to credit the debtors account and debit an account set up for CIS tax. If you use Sage you could set up a new bank account solely for the CIS tax.
By doing the above you will clear down the gross debtor in the sales ledger, and have a debit balance sitting in an account to represent the CIS deducted to date.
If your client becomes VAT registered you would need to account for the VAT based on your clients gross invoice value, before CIS tax has been deducted.
Hope this is of help?
Wendy
-- Edited by Wendy at 17:34, 2008-03-17
Wendy - may I ask a further question on this topic please? I understand the credit note on the debtors (for the 20% deduction as obviously the Company paying the invoice has deducted the tax and thus the Debtors ledger has to be reduced to reflect this) so Cr Debtors and Dr CIS Control does this stay as a Asset in the books is it just an accumulated balance or even reduced somehow???
