I was wondering if anyone can help me, I have a new client who is in the construction industry, when he invoices someone in the same industry he deducts 20% off the labour (not materials).
My question is where do I input the CIS amounts to I am on Quicksbooks Pro 2008. I assume that when I input his invoice under creat invoices etc I can put down the materials, Labour & Vat is automatically worked out but do I set up a separate account for the CIS to be posted to because technically its a Tax?
The same goes for when he subs work out they send him an invoice for payment less their 20%. If he subs it out he then pays the 20% CIS once a month to HMRC.
Any help would be much appreciated as don't want to get it wrong.
I worked in an accounts office in a construction company and we dealt with sub-contractors on a regular basis.
I used Sage MMS which is obviously different to Quickbooks but i will try to explain how we dealt with CIS amounts and hope it may help you.
When i received an invoice from a sub-contractor who had, for example, tiled bathrooms in a development of 20 houses i would enter the invoice as normal in the purchase ledger.
When a payment was made by us to the sub-contractor, the CIS amount was entered as a credit note to a nominal code that was set up specifically to capture the tax. It was then possible to look at this nominal code to find out how much was due to be paid to the revenue.
So i think in answer to your question, you probably will have to create a seperate account for CIS to be posted to.
Thanks for the info, can I just clarify it please. Are you saying that when my subcontractor gets an invoice from 1 of his guys (subbys) I have to record that in the purchase ledger, what happens to the 20% CIS on the invoice though? Is this the bit where the 20% gets posted as a credit to a separate account.
Then when my sub contractor does work for someone else I put it in the Sales where does the CIS go thats on his Sales invoice to his customer/subcontractor, am I right in saying that this CIS then gets paid by the person/subcontractor who has employed him to do the job?
Some of his invoices does not have CIS on it if its for someone who is not in the contruction industry, ie private work, so I will just enter them in as normal sales invoices as usual.
Have I got this right now or not? Any help would be much appreciated.
Nigel's method is the same as we have also always done.
Just treat all invoices the same as usual, you don't make any deductions on your client's own invoices - this is down by their customer. When amounts are deducted you can raise a credit note to cover the amount deducted (ie the difference).
With invoices received from sub-contractors... you also enter the full invoice as the are the costs that need to be fully recorded.
When payment is made, you deduct the 20% on labour so making the payment will not cover the entire invoice that is due. To balance this, you can raise a credit note for the subcontractor for this CIS deduction - and with the account code being a CIS liability account.
This will then clear the invoice, leave the expense code as it should be, and move the 20% deduction from creditors (the subcontractor) to CIS (HMRC).
We'd usually have CIS accounts setup in a similar manner to the VAT accounts, in the liabilities section of the balance sheet.
For what it's worth, I used to create a purchase invoice on Quick Books for the amount owing to the creditor (ie. Invoice total less the CIS Tax) ... the Nominal coding would then be Debit the Gross Cost on the first entry line and Credit the CIS Liability account on the second entry line ...
(Note : The combination of Debits & Credits on one set of codings worked on Quick Books without any problems but I have no idea if it would work with Sage or not.)
Doing it this way cut out the need for Credit Notes.
The deduction should be posted to the accounts the same date as the payment, not the invoice. HMRC require you to pay over deductions between certain dates. If you journal the deduction the same date as the invoice, you will not be complying with HMRC.
Payments should be shown as the full amount due in order to comply with current legislation. I agree that a credit note should be raised against a liability account when less money is received due to tax deduction.
When payments are then made to HMRC for the tax, this can go against the liability.
The same with income - it should be shown in full to comply with legislation.
