Contractor has passed an invoice to us for CIS calculations etc. for a new sub contractor.
The sub contractors invoice shows the total amount due with a notation of " Labour 50% Materials 50%"
Is such a statement acceptable? All our other Sub Contractors have a monetary amount entered for materials.
Bearing in mind there is a responsibility for a Contractor to consider the material charge to be accurate, would such a vague % be acceptable, as I understand that should HMRC question the materials element, and its found to be excessive then they would look to the Contractor as at fault.
Must admit I have never seen materials charged by a subbie as a % before, could it be that it this is an initial payment for a job where both the subbie and the contractor have agreed on a part payment just to get the job started with further payments and a more exact figure for the materials being charged before the final payment.
I know a lot of Contractors who will not pay for any materials until they have been delivered to site which sometimes means that the first Invoice issued by the subbie does look out of sync because they are charging a large amount for the materials supplied and not so much for labour.
I think you need to contact the Contractor and find out if they are happy that the price charged is a fair reflection on what materials have been supplied.
Is it a large amount of money? And what trade is it for?
You are correct though that if HMRC deem the materials excessive they will look to the Contractor.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
I have since contacted my client and established the invoice is for the full job, and the Sub Contractors are in fact Scaffolders, which brings into question what materials are being charged for ?
The total amount involved is approx £6k and I have asked my client to go back to the Sub Contractor and ask for a reasonable breakdown of material costs.
The onus is on the contractor to determine that any materials charged for is a reasonable assessment, as Doug pointed out. In this case it looks like the subby was looking to reduce the CIS deduction by half, thus saving himself £600. False economy in one respect because he'll have £600 less to claim back at the end of the tax year, but no doubt looks upon it as better in his pocket now rather than later. A good example of why we as bookkeepers and accountants are doing a worthy service FOR both the tax payer and the Government, yet the Gov would prefer for everyone to submit accounts digitally themselves.
In this situation you've possibly prevented two tax payers from being penalised
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
The onus is on the contractor to determine that any materials charged for is a reasonable assessment, as Doug pointed out.
Hi John,
In fairness Jay already said this in his OP I was just confirming that he was correct.
As I said I have never seen it blatantly put as a % before but some do try it on, mainly the contractors who are do not have gross status and also have to pay their own subbies, some will try to claim the wages as materials so that they have no deductions on these amounts.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
The onus is on the contractor to determine that any materials charged for is a reasonable assessment, as Doug pointed out.
Hi John,
In fairness Jay already said this in his OP I was just confirming that he was correct.
As I said I have never seen it blatantly put as a % before but some do try it on, mainly the contractors who are do not have gross status and also have to pay their own subbies, some will try to claim the wages as materials so that they have no deductions on these amounts.
My apologies to Jay.
I do have sympathy for subbies who have subbies, whilst not condoning their actions. I have a subby who also has subbies, so not only does he pay CIS tax on the whole invoice, he has to pay the subbies tax as well. Granted he will get it back when the tax return goes in, but it's still a big hit.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
We often have sub-contractots who specify the percentage of materials and labour. We just write in the figures for them.
However what rings alarm bells for me is the fact the sub-contractor says they always split the invoices 50/50. We would always expect the labour/materials percentage breakdown to be fairly accurate so unless this subbie always does exactly the same kind of job with the same split then I can't see how they can do that.
In my position I'd pass the invoice to the engineer who contracted the subbie for approval and he would check it against the original quote/knowledge of the job on site and if necessary ask for a breakdown. I am often asked for breakdowns when we work for larger main contractors too.
