My client is a Contractor and Sub Contractor and operates a CIS Payroll to pay their Sub Contractor (suby)
There three entities involved My clients suby, my client, and the end client - my client's suby does the work for the end client
My client's suby is VAT registered, the question is. How to treat the VAT, the scenario is as follows
My client's suby raises a VAT invoice to my client for the work carried out, my client then pays the suby through the CIS Payroll
So let's say the VAT Invoice from my client's suby = £1000 plus VAT of £200 = £1200 gross
My client processes his pay at £1000 less 20% CIS tax meaning he will receive £800 OK no problem there.
My client then raises an invoice to the end client for the £1000 plus a fee £13 = £1013 + VAT 202.60 = £1215.60.
Ignoring the CIS situation for a moment. Normally any VAT invoices issued are paid in full therefore no VAT issue because the total amount of the invoice is paid.
In this case my client's suby has a VAT liability of £200 from his invoice that he would at some point have to pay to HMRC on his VAT return and because he is paid through CIS his invoice is only partial paid, this being the £1000 net amount (the CIS tax deducted he would offset against his Tax return at year end).
My client has on their books a Purchase ledger Invoice (from their suby) and a Sales Ledger Invoice (to the end client who they are the end client's suby)
It seems to me that my client's suby should not have to suffer their VAT liability and my client should not be able to claim the purchase ledger VAT either.
I would suggest that a VAT only invoice be raised from my client to their suby which would remove the VAT liability from my client's suby books, and remove the Purchase ledger VAT from my client's books, this seems perfectly reasonable to me BUT I would welcome any feedback/views.
Quite difficult to put into words, hope I have explained this OK
There three entities involved My clients suby, my client, and the end client - my client's suby does the work for the end client
Unless your client's suby is paid DIRECTLY by the end client, your client's suby is working for your client. Look at it this way and it takes away the problem. Unless I'm misinterpreting your post completely.
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Never buy black socks from a normal shop. They shaft you every time.
My client's suby is contracted to my client who pays the suby through CIS Payroll. When paying the suby through CIS Payroll the VAT is not included in the payment only the net amount less any CIS Tax. It seems to me that my client's suby then would have to suffer the VAT on his invoice and never get paid for the VAT element.
Normally when a VAT invoice is raised and paid in full the person who raised the invoice acts as a tax collector to pay over to HMRC, in this case the suby does not get the VAT element paid to him so must be out of pocket?
My client's suby is contracted to my client who pays the suby through CIS Payroll. When paying the suby through CIS Payroll the VAT is not included in the payment only the net amount less any CIS Tax. It seems to me that my client's suby then would have to suffer the VAT on his invoice and never get paid for the VAT element.
Normally when a VAT invoice is raised and paid in full the person who raised the invoice acts as a tax collector to pay over to HMRC, in this case the suby does not get the VAT element paid to him so must be out of pocket?
Graham
He is not suffering the VAT element. He will include the invoice on his VAT return and the amount he has to HMRC will be reduced. It is confusing because the VAT rate and the tax deducted via CIS is the same 20%.
The CIS tax is calculated on the amount before VAT but the amount paid is the invoice value £1,200 less CIS tax £200 = £1,000.
EDIT : I've not been reading this right. Why is the client not paying the VAT amount?
-- Edited by Peasie on Friday 16th of May 2014 12:47:49 PM
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Never buy black socks from a normal shop. They shaft you every time.
The VAT on the suby's invoice has to be paid in addition to the CIS net cost.
So in the example you have given, I assume the £1000 was all labour & no materials, so as you say the CIS deduction will be £200 if the suby is taxed at basic rate. So the payment your client will make to the suby is £800 + £200 (VAT) = £1000, and the payment to HMRC of £200 via CIS, thus clearing the total ledger entry of £1200
This is the suby's sales invoice so surely the amount to HMRC on his return is increased not decreased. VAT on sales increase VAT liability VAT on purchases decrease VAT liability or am I going mad here? I am considering the suby's books.
This is the suby's sales invoice so surely the amount to HMRC on his return is increased not decreased. VAT on sales increase VAT liability VAT on purchases decrease VAT liability or am I going mad here? I am considering the suby's books.
You're not the one going mad - it's me that is. I don't know what I was thinking about. (How did I get that "expert" next to my name?)
You should not be concerning yourself with the suby's books.
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Never buy black socks from a normal shop. They shaft you every time.
I sort of understand your issue but as someone said, the subby of your client is not really your concern.One way of looking at it is that whilst the subby is charging £200 VAT in your example he is also being paid the £200 (He should be paid £1000 less 20% plus £200 VAT = £1,000) and more to the point, as your client is paying the CIS amount to HMRC.......it is basically on behalf of the subby so effectively he IS being paid the invoice in full. He won't be complaining at the year end! : )
There is no real net difference to a subby who isn't VAT registered??
