One of my clients does sub-contracting work and he collects the cash from the customer, keeps half for himself nett of VAT and CIS Tax, and sends the rest to the Company.
I have recorded the sale, recorded as a receipt his half and recorded the cheque for the remainder. This is where the fun begins because the cheque shows as an asset on the Company Sale record. I understand why that has happened because it's a payment out rather than a receipt in
It's probably quite easy to sort but I just can't get my head round it. Screenshot attached to show you what I mean. Sale £184.80 inc VAT Clients share £77.00 net of VAT (he isn't VAT registered) £107.80 sent to company.
many thanks in advance as my head hurts trying to think of a solution
He's not. He's subcontracting. The VAT is at the higher level of the VAT registered service provider
purchase of service from the VAT registered company was £184.80 inclusive of VAT (so £30.80 VAT to be reclaimed)
non VAT registered person takes £77 on which no VAT can be reclaimed by the subcontractor.
BUT
The reality is that the full amount should have gone to the VAT registered company who should have passed £77 back for services rendered.
The intermediate business is ensuring payment by retaining their chunk up front rather than passing on everything in the hope of getting their chunk back.
The VAT registered service provider should have recorded £184.80 received and paid £30.80 VAT on that, sent £77 to the subcontractor and retained £77 revenue themselves but the VAT registered service providers top line remains at £154 with £77 as a cost of sale.
kind regards,
Shaun.
__________________
Shaun
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.
The reality is that the full amount should have gone to the VAT registered company who should have passed £77 back for services rendered.
The intermediate business is ensuring payment by retaining their chunk up front rather than passing on everything in the hope of getting their chunk back.
So how do I reconcile it Shaun? This is how the service provider told him to do it.
Just to confirm I have this correct. debit cash £184.80 credit £77.00 customer:xxxxx credit £107.80 creditor:xxxxx
When cheque sent to company credit bank £107.80 debit creditor:xxxxx which will cancel out creditor balance
As you are aware he should have sent company £123.20 to allow for CIS deduction of £15.40 so assuming he had done this it would be
debit cash £184.80 credit £61.60 customer:xxxxx debit £123.80 creditor:xxxxx When cheque sent to company credit bank £123.80 debit creditor:xxxxx which will cancel out creditor balance
Journal credit £15.40 customer:xxxxx debit £15.40 CIS tax to balance the £77 invoice
Because he didn't do that I presume that when he sends the cheque for the CIS Tax I
credit bank £15.40 debit creditor:xxxxx £15.40
then do a journal credit £15.40 creditor:xxxxx debit £15.40 CIS Tax
-- Edited by xantia743 on Friday 4th of October 2013 12:03:06 PM
I think that we've sorted this out offline but for others interested in the outcome of this here's an excert from the reply :
the real issue is that there is an invoice going through your clients books for the full £184.30 rather than the £77.
The basic fact is that your client has no right to the £184.30 but is acting as an intermediary for the next company up the chain.
The sales invoice should have been for £77, not £184.30.
When the statement from the primary contractor was received then that creates a creditor for the balance in that your client is temporarily holding money that does not belong to them.
When the payment from the client of £184.30 for the main contractor on which your client was entitled to £77 was received then it needs to be split :
1) the sales invoice for £77 is revenue
2) the remainder is sent to the primary contractor and matched off against the creditor figure that had been included in the accounts
At the period end only £77 would be recorded as sales and only any balancing figure of creditors finds its way to the accounts.
kind regards,
Shaun.
p.s. to others I have seen the actual documents and VAT and CIS are all fine. The only issue was with misrecognising the full payment as revenue rather than the portion to which the client was entitled.
__________________
Shaun
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.
