CIS on deposit invoice

Original Post:

L

last of the summer wine

Free Member
Sep 7, 2021
61
2
  • #1
    Hi,

    A job falls within the scope of CIS and reverse charge, and the (new to us) client has asked for a deposit invoice up front. It's a long-ish contract and the work hasn't started yet so at this stage we don't know exactly how much will be labour and how much materials, so can anyone please explain how to deal with this deposit invoice as far as the CIS is concerned.

    (We deal with lots of CIS but so far not had a client who has requested a deposit invoice!)

    Many thanks.
     
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    UK Contractor Accountant

    UK Contractor Accountant

    Free Member
    Sep 18, 2013
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  • #2
    Page 27 of the CIS340 booklet says that:

    the contractor should "Deduct from the gross payment the amount the subcontractor actually paid for ... materials""The contractor can ask the subcontractor for evidence of the direct cost of materials.""If the contractor fails to give this information, the contractor must make a fair estimate of the actual cost of materials"

    You need to look at the terms of the contract to see the total estimated cost of materials and the basis on which the deposit is required. It is probably more usual for a deposit to be required to fund the estimated cost of materials, rather than of labour, so if the total cost of materials exceeds the deposit, it would be reasonable to treat all of the deposit as relating to materials and deduct no CIS tax. If the total cost of materials is less than the deposit, deduct the total cost of materials from the deposit and calculate the CIS tax only on the balance. Keep a record of your reasoning in case HMRC ever chooses to enquire.
     
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    L

    last of the summer wine

    Free Member
    Sep 7, 2021
    61
    2
  • #3
    UK Contractor Accountant said:
    Page 27 of the CIS340 booklet says that:

    the contractor should "Deduct from the gross payment the amount the subcontractor actually paid for ... materials""The contractor can ask the subcontractor for evidence of the direct cost of materials.""If the contractor fails to give this information, the contractor must make a fair estimate of the actual cost of materials"

    You need to look at the terms of the contract to see the total estimated cost of materials and the basis on which the deposit is required. It is probably more usual for a deposit to be required to fund the estimated cost of materials, rather than of labour, so if the total cost of materials exceeds the deposit, it would be reasonable to treat all of the deposit as relating to materials and deduct no CIS tax. If the total cost of materials is less than the deposit, deduct the total cost of materials from the deposit and calculate the CIS tax only on the balance. Keep a record of your reasoning in case HMRC ever chooses to enquire.
    Click to expand...
    Thank you.

    Yes, materials will exceed the deposit so no CIS, but I assume I have to reverse charge the VAT on the deposit invoice?
     
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