I have a client who is on cash accounting for vat and has had a cis deduction from a recent payment and I am a bit confused as to how to correctly deal with this
Eg,
Invoice to customer (all labour) 4000.00
VAT 800.00
Total 4800.00
Custmer pays 4000.00 (4800.00 less 800.00 20% cis)
How do I deal with the outstanding balance of £800.00, I was thinking that I raise a credit on the customer account for £800.00 inc vat and post it to CIS liability account in the balance sheet
If this is a Sole Trader then the account is paid in full so the £800 would go to Drawings as it is helping reduce their personal tax liability at the end of the year. If a Ltd Co it would go to reducing their monthly/quarterly PAYE bill. It certainly shouldn't have any element of VAT in it.
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Never buy black socks from a normal shop. They shaft you every time.
Interesting question! Rather annoyingly, the answer is that you are still liable to account for output tax on the gross amount. Notice 731, para 5.8 provides explicitly for this.
Thanks for your answer and telling me what notice to look for , I had a feeling that is what I was going to be told because it just didn't feel right doing what I had put in my op.
Firstly, i would like to know what accounting software are you using. If it sage, then there is a straight forward way of doing it.
However, i will tell you how to deal with this manually.
Firstly, CIS deductions are like PAYE deductions for the sub contractors. We need to deal CIS decutions in four steps as below:
1.) Post the invoice to the subcontractor account as normal. i.e., Net £4,000 and VAT £800
2.) Now post a credit note on the subcontractor account with Net £800 and VAT nil (outside VAT scope) to nominal code CIS Liability (Balance Sheet nominal). This results in supplier balance of £4,000 and CIS liability (Balance Sheet) of £800
3.) When the invoice is paid, you pay the VAT £800, Net £3,200 total of £4,000. This clears the creditor account
4.) When you pay the PAYE & CIS to HMRC, you then make a bank payment to CIS liability account and PAYE/NIC account accordingly.
Hope this helps.
If you are using Sage line 50, you can do this without any hassle. If you need any assistance do not hesitate to contact me.
-- Edited by napster on Saturday 23rd of February 2013 09:19:37 PM
-- Edited by napster on Saturday 23rd of February 2013 09:22:14 PM
Since you are using Sage and the company is using Cash Accounting VAT scheme, it is highly recommended to use the CIS functions available on sage since you know that sage doesn't accept different VAT codes while matching a payment or receipt.
Steps to activate CIS on sage is as follows:
1.) Select Tools from the menu above, then select Activation -> Enable Construction Industry Scheme 2.) A new window pops up, select Next 3.) In the new screen, Sage shows predefined Nominal Codes for CIS Scheme. You can change it if your using different nominal codes for CIS invoices. Press Next button 4.)In this tab, you need to enter company details of your client and press Next 5.)In this tab you need to enter the Government Gateway login credentials of your client. 6.) In the next tab it asks for your sage serial number and activation code for CIS. If you do not have these, i suggest you to call sage and get your activation key. 7.) Once you enter all these details and press Next, Bang your Sage is now capable of doing CIS Calculations on its own.
Note:- Steps 3 & 4 can be left blank if you do not wish to submit monthly report using sage.
Once you do these steps and your CIS gets activated, you simply post invoices as normal and match the payments as normal. You will see when you match payments now for the invoice stated in your first post, it will only deduct £4000 from the bank and the CIS liability of £800 will appear in Balance Sheet as due to HMRC.
You now can submit monthly CIS returns as well as Verify Sub contractor status with HMRC. You can find detailed notes of how to do this on sage help. Select Help from the menu and search CIS.
