CIS Deductions Query

littlesnuggy

Hoping someone here will know the answer to this for me, as I have no accounting expertise whatsoever, and we are currently in the process of appointing an accountant and bookkeeper...

We're a new business in the construction industry and have registered for the CIS scheme. We are involved in a large contract for a main contractor as sub-contractors, but we (my co-director and I) are the only employees and are acting in a project management role and employing our own sub-contractors to actually carry out the works, supply their materials etc.

I thought that the CIS deduction would only be made from our own labour content (which I split out on the invoice) which is a fraction of the overall invoice. Instead, the main contractor has deducted 20% from the entire invoice.

Most of our sub-contractors qualify for gross payments, so it will be us as the 'middle men' losing out cashflow wise if this is correct, as we will not be making any deductions from their invoices.

For reference, the net invoice was just under £46,000 with our own labour charge making up just £5400 of that. We were therefore expecting to be deducted £1080, not just over £9k!

Please can anyone advise?
Thanks!

Pennywise

Where did you get the idea that CIS tax was only on your own labour? It isn't. It's on the "labour element" of your invoices, which includes other people's labour. You get CIS tax deducted from your total invoice value less materials supplied, not less materials & subbies. I think you need a rapid re-think of your business plan as your cash flow is going to be hit badly if you hadn't planned for this. One alternative would be to replace your gross subbies with 20% tax subbies, then you can offset tax deducted from your sales invoices against tax you're deducting from your subbies.

littlesnuggy

Thanks Pennywise, but what bummer! My colleague spoke to the CIS helpline today as well as our tax office and they both admitted that yes, it wasn't really ideal or fair on us, but that was the system and we had to live with it. We should be turning over enough to qualify for gross payments ourselves (although I know there are other criteria that have to be met, too), so we're going to apply for that asap.

For the moment, I am going to submit a full breakdown of all labour (us & subbies) to the main contractor so they can adjust this month's deductions, which should mean a few extra £k coming to us. Oh, and try to use the 20% subbies more than the gross ones, where possible!