Can anyone enlighten me as to how we should account for work carried out by other companies that we engage.
As our business (construction and maintenance) has grown we have decided to have certain works undertaken by other limited companies.
For example we as a small limited co. are awarded a contract by a customer of ours and we engage another ltd co. to carry some of the works for us at a price including all material labour machinery hire etc. We invoice our customer for the whole costs and our supplier invoices us for the whole works they have carried out.
Qu. do we account for the subcontracted work as straight purchases or are there implications or the subcontracted labour element of the works undertaken? We engage individuals under the CIS and have no issues there but what about firms who provide a full service to us.
I put my client's sub-contractors under 6002 if this helps. Although they are not involved in CIS so don't know whether you would deduct 20% when paying them?
Thanks Pauline, I don't know who these suppliers employ hence the qu.
I've tried to rephrase the question as below.
As a small construction firm, (ltd Co.) we employ a no. of individual sole trader subcontractors under the CIS and have no real problems with posting their costs and remitting the PAYE to HMRC etc. I use 6002,2210,2220 nom codes.
Recently we have been awarded some larger contracts and have decided to satisfy these by engaging some 3rd party specialists who are limited co.s who provide a full service (ie not labour only) to carry out certain parts of the contract. We will invoice our customer and each of these 3rd parties will invoice us for their part including all materials,equip hire and labour etc. An example might be 1) Our invoice to our customer is for £10000+Vat 2) Supplier A invoices us for £5000.00+Vat say for laying a floor 3) Supplier B invoices us for £2000.00 + Vat for building a wall 4) We use one of our sole traders subcontractors at a cost of £500.00 Gross for digging a trench. Am I correct in assuming that these Suppliers A and B should be posted up to a Nom Code sitting within the Purchases 5000-6000 Grouping and that there is no need for us to account to HMRC for any of the labour element of their invoiced costs and we treat our "direct" subcontractor as usual?
I would say that you treat these Limited Company sub-contractors the same way as your sole trader sub-contractors. I haven't dealt a lot with CIS but if these companies are registered under CIS then you need to verify them with HMRC before paying them as you need to know whether they are paid gross or net of tax and I think they have to split their invoices into labour and materials. (But not entirely sure about that).
I would still post them under 6002 sub-contractors as that is what they are.
Maybe someone who knows a little more about the CIS scheme can assist?
From your description I would have thought that you are the Contractor and they are the subcontractor as you are subcontracting them to do work for you on your contract. Some firms can be contractors and subcontractors just to make it more confusing.
