CIS STATEMENTS-material query

mira2602

Hello there,

hope you can help me with this query of mine.

I came across CIS Statement, and I don't understand the material part.

for example:
gross amount received £2,000
less cost of material: £1000
amount liable for tax £1000
CIS tax deducted: £200
amount payable £800

similar statement received friend of mine, where he received a sum of £2000, by cheque, and expected contractor to deduct a tax from £2000. Instead, according to this statement, contractor made the amount of £1000 as material....to reduce the amount of tax he has to pay.

But, when subcontractor does his tax return, as he has his own expenses, who will have to show receipts for the material mentioned above?

Hope this question makes sense to you ...thank you for your help in andvance.

MIra

T.C.

Firstly, that seems to be a mathematical error. The amount payable should read £1800.
On the second count, contractors do this but shouldn't - it only helps the subbie, so he should ask that it be paid properly. In the event of an enquiry they might check it. Hope that helps.
I LOVE CIS!

mira2602

thanks for reply TC,

can you make it clear for me, please?

how that helps subbie? he get paid £1,800 by cheque, but according to CIs statement he had £1000 expense, he can not show for...(plus bare in mind he has his own expenses he wants to deduct).

So, when it comes to tax return, his income and tax deducted will not match.

T.C.

I think that is a mathematical error on behalf of the contractor. The final figure has been calculated incorrectly and should have been £1800. If he only received £800 he should check with them as they have underpaid him.

mira2602

the error is there, unfortunately, its mine as I copied it incorrectly. ( I try to do too many things with toddler in my tow:)

So even if he received £1,800, the tax deducted was only £200, and there is still a question of £1,000 of material, which I am lost about.

T.C.

Basically it should never have been paid like that - it is the contractor who is at fault unless the subbie invoiced him like that - which way around was this - do you know?

mira2602

Honestly, it looks like the contractor is reducing the full amount by deducting material, so he does not have to pay tax from the full amount.
The subbie in question does not have a clue...plus it does not help his case, as he has his own expenses,so he is not profiting from it.

What is gonna happend now if he does his tax return? He can't say the material are his, as he can not show for it....plus if he expected tax refund....any solution?

Did you come across such a statement in your practice?

mira2602

Morning anyone,

does anyone know how to deal with above situation in practice, please?

Many thanks in andvance

Bluewednesday

I would put on the accounts what he has invoiced, regardless of what the contractor has put on their statements. I would then put the actual tax deducted on the tax return.

Has your subcontractor actually invoiced the contractor? Assuming he has then make his accounts up to what his invoices state, take his expenses and calculate his profit on that.

I would also ensure that the contractor deducts correctly in the future but it is the contractors responsibility rather than the clients, he has gained no cash advantage by doing what he has done as he's still paid out £2000 but it should be done correctly for the future.

K H

The reason the Contractor does this is to try and show that the subbie is in fact self-employed and providing his own materials ,because if he were labour only and the Contractor had a paye/cis inspection HMRC would assume he was in fact an employee and look for the back tax and ni.
I would do his accounts correctly, you can't claim for expenses that don't exist.

groundy

K H wrote: »

The reason the Contractor does this is to try and show that the subbie is in fact self-employed and providing his own materials ,because if he were labour only and the Contractor had a paye/cis inspection HMRC would assume he was in fact an employee and look for the back tax and ni.
I would do his accounts correctly, you can't claim for expenses that don't exist.

The fact that the subcontractor provides materials or not has very little impact on deeming employment status and is a common misconception.

If the subcontractor has provided materials for £1000 then the above is correct and there would be a cost of sale of £1000 to be claimed against sale of £2000. However, if no materials are supplied and it is labour only then the subcontrator should take it up with the contractor.

CIS isn't confusing it's just contractors and HMRC that make it so!!!

honada

I would account for his actual invoices submitted to the Contranctor and his expenses supported by receipts, then on his assessment include the tax paid by the Contractor on his behalf. Please correct me if I am mistaken.

mira2602

I can't thank you enough for clearing that up,

I have one more question: in the case of HMRC inspection, how would you explain the difference in material?
I mean, subbie will do his assesment for his actual invoices submitted to the Contractor and his expenses based on his actual receipts, but the CIS statement from the Contractor will have different amounts( material).

K H

In reply to Groundy's comments about it being a common misconception regarding employment status and as someone who has attended quite a few paye/cis inspections, this is exactly what the contractor is trying to do.
Obviously he has provided no materials, and whilst it would be preferable to ask the contractor to go back and re-issue correct cis certificates i bet they will be very reluctant to do so.
Use his correct invoices for his accounts and if an enquiry comes up, point them to the correct invoices you've used and in the direction of the contractor

JodieR

I agree with the others. HMRC will verify the CIS deducted amounts which your client declares on his tax return against those which the contractor(s) have declared (and paid over) on their monthly CIS returns. It's important that those figures match. HMRC don't expect the values for materials to be exactly the same on the subbie's self employment page as what's been declared on the contractors CIS returns as the subbies may have purchased materials to do jobs for customers who don't fall under CIS, or they may have under/overstated the amounts on invoices to contractors. I don't think that it's something HMRC routinely check, so yes, while it may look odd that a contractor has declared a materials value of £1000 and in the 'materials' box on the subbie's tax return there's a value of nil, it is unlikely that it will ever be picked up, and even if it is, if the subbie has paid all the tax he's meant to then I can't imagine it resulting in any more than a slap on the wrist for the contractor.