I am just completing the self assessment for a site foreman who is both employed and self employed.
Through one of his contracts he has been paid VAT on his wages. No deductions have been made in terms of the CIS scheme.
My query is whether the VAT element is included as part of his taxable income.
Thanks in anticipation
Valerie
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I assume he is VAT registered? If so, simply ignore the VAT when it comes to taxable income. VAT is ignored in income statements when calculating net profit/tax liability, so it should be ignored here.
If you are saying that the contractor paid VAT on top of the payment without it being originally billed (i.e., overpayment error), then it should still be ignored and considered a payment on account....i.e., taken to the balance sheet and not on the P&L......but I suppose it would be required to be repaid??
This is an individual who is both employed and self employed. You talk about a contract but also his wages, which is it, money he has billed for as a self employed person or wages he has received as an employee?
Assuming it is the first - he is self employed and received this income - is he VAT registered?
If not, did he erroneously invoice as if he were VAT registered? What is the actual paperwork for all this?
He is registered under the CIS scheme and is normally paid with the normal 20% deductions
On this occassion. He self bills the company with an invoice which includes the hourly rate and CIS deduction.
The payment advice notes from the company do not match the invoice. They show the basic pay (which is correct as per the hourly rate) plus VAT giving a gross figure matching the payment figure. No tax paid and no CIS deduction.
Hope this makes sense
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
There seems to be two things here......the CIS issue and the overpayment.
1 - CIS - This will need to be sorted out. As it stands, your client will have to account for tax on this income which should have been dudcted by the customer. As the tax is calculated on the profit and then deducts tax already paid (i.e., CIS witheld), then this won't mean doing anything different. However, the customer in question will have to start deducting CIS.....perhaps they will have to be told....perhaps they don't know how to? Maybe be a good idea to contact the CIS helpline??
2 - VAT - No idea why they would do this. Perhaps they are confusing the 20% CIS tax with 20% VAT?? Maybe whilst you are querying their payments they are thinking 'what a bizarre way to show the net and VAT on an invoice'!! However, whatever the reason for the overpayment, I would still book this as a payment on account......or move this from suppliers account to creditors (perhaps accruals or deposits held?). In short, no reason to include this on his tax return.
If you invoice someone for £1,000 and they pay you £1,000,000........the invoice amount is what goes o the tax return not the £1M. In that case you would be paying tax on an inflated income and then a week later for example they would be asking for their £999,000 back!!
I have found my error. The payment advice notes I was looking at were between the company and the recruitment agency (hence the vat)
Many thanks for all your help
__________________
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
