Tricky VAT & CIS invoice & payment issue
Okay, the background first.
I'm VAT registered and so is the contractor. The Contractor's CIS rate is 20%.
I have issued an invoice to the contractor for £4,500 (inc VAT) for materials I supplied.
Contractor has issued me an invoice for £5,000 (inc VAT) for labour only.
The two invoices relate to two different jobs.
The contractor is refusing to pay the £4,500
So, in order to process everything correctly and to ensure my accounting etc is all in order I wanted to process the £5,000 invoice as follows.......
£5k Invoice received
-£833.33 CIS payment made to HMRC
=£4,166.67 Payable to Contractor
Then use the £4,166.67 to offset against the £4,500 owed to me. Leaving a balance of £333.33
This would allow me to offset the £833.33 VAT I've paid on his invoice against the £750 I'm charging on my invoice, leaving me with a £83.33 rebate/offset. However, If I do this I'm unlikley to ever see the £333.33 again as we can safely say that neither of us will ever work together again.
However, as his invoice is for more than mine, am I able to only pay the difference and have the CIS payments deducted from that? i.e.
£5,000 invoiced to me minus the £4,500 I've invoiced him = £500 balance due to contractor.
Therefore, I process the payment of £500 as follows:
-£83.33 CIS payment made to HMRC
=£416.67 payable to contractor.
But I have a few questions if I do this.
Would I lose out on the VAT side of things. i.e my Invoice has £750 of VAT, I then only pay him £500 of which there is only £83.33 of VAT to offset?
Would this be seen as avoiding CIS? which is not my intention (hence why I want to process his full invoice via CIS system).
I need to ensure that whatever I do is correct in terms of VAT & CIS.
Any advice would be much appriciated.