Sole traders ClS self assesment on reimbursed expenses

Bubble

Hello. Please help.
A sole trader under CIS pays for his train tickets and materials from his own bank account and gives his receipts to his contractor for reimbursement. Contractor takes CIS from his labour part only and adds expenses.
Let's say his invoice is stating:
Labour £500,
traveling and expenses £300,
subtotal £800,
Cis deduction £100,
Balance due £700.
So the gross payment would be £700, but can sole trader add these reimbursed expenses to his tax return without having receipts for that (given to contractor) or he has to pay tax on something what he didn't made profit on? Contractor supplied sole trader with £200 for unexpected expenses at the beginning of the year and all these expenses are work related only.

douglasstroud

First place to start would be what is on the monthly deduction statements from the Contractor? How are the deductions shown?
The only expense that would not be liable to the CIS deduction at the appropriate rate would be any amount included for materials and this should be clearly shown on the sub-contractors invoice and he should be keeping the receipts for these, if travel is also being paid gross then this is wrong as it is an expense for the sub-contractor who should keep their own receipts and claim it back as expenses via their SA at the year end.

At the moment the sub-contractor is liable to pay tax on the £800 with no receipts and only £100 in tax deducted where as the contractor has an Invoice for £800 as an allowable expense as well as receipts to the value of £300

Bubble

I see. In this situation I am concerned about sub-contractor only, and as far as I know contractor is liable to make correct CIS deductions, not subby. Let's say, for instance, that sub-contractor manages to get scanned coppies of the receipts for those expenses. Will he then be allowed to claim that ammount as his own expenses against income tax even he was recharged all those expenses by contractor? Am I right to asume that even CIS deductions were not right, it was taken at 20% from all his labour part, so deducting recharged expenses from his profits would lead to sufficient tax ammount in his CIS scheme?
Thank you so much for your help here. I am just wondering, why sub-contractor should pay tax on something he has not made any profit on. By the way, sub-contractor is not vat registered, and invoicing contractor with the exact ammount of expenses as he incurred.

douglasstroud

As I said above what do the monthly deduction statements from the Contractor say? from what you say it seems that the Contractor is allowing the £300 for 'materials' which would then not be liable to the CIS tax deduction but this is wrong as travel expenses are not classed as materials, yes you are right that it is the Contractors responsibility to apply the correct tax treatment in regards to labour and materials but in all honesty the only way that this would ever come to light would be if the Contractor had an inspection and it turned out that the Sub-Contractor had not been filing their SA and paying tax, then HMRC might hold the Contractor responsible for any lost tax.
Why is the Sub-Contractor giving in their receipts? It is their expenses and they should be Invoicing for them and claiming them back through their SA, and no, copies will not be acceptable as there is a good chance that the Contractor is also claiming the expenses using the original receipts.
If I am reading this right then from what you say at the moment the Sub-Contractor will have Gross Sales of £800 which he will be liable to pay tax on, minus any deductions in CIS tax that they have already paid.
Think you need to have a chat with both the Contractor and the Subbie to find out exactly what is going on, but start with the deduction statements

douglasstroud

Did you manage to get this sorted?