20% tax deduction on labour - subcontracting

Tom,

I think if you have employees already, you'll be registered to pay PAYE/NI/CIS together right?

In that case just explain the balance of the payment as a refund of PAYE/NI for now (so two explanations which add up to the total amount you paid the subbie - the invoice paid in full and the refund of PAYE).

Then when you pay the HMRC you'll add that deduction into your payment and the PAYE account will balance out.

Give this a go, and we'll get our heads together once our cool new Tame Accountant Emily is back from her hols next week and validate that it's correct.

Hi Tom,

You do of course need to issue your invoice before deduction. So let's say you issued an invoice for £100, but your customer will only pay you £80.

Assuming you are uploading your bank statements and then explaining the transactions:

- When the receipt comes in and you are explaining it, you'd then need to change the amount from £80 to £100, so that the invoice is fully cleared. The software will then automatically put in a payment for £20, and I would explain this as PAYE/NI paid - because it needs to be kept out of your profit and loss account, it goes in a separate box on your Tax Return.

If you are entering your bank transactions manually, then enter a receipt of £100 against the sales invoice, and a payment of £20 to PAYE/NI.

That should make everything work properly (your bank account will balance, your sales invoice will be fully cleared and appear in full in your profit and loss account, and the CIS deduction will be kept separate).

I hope that helps, but if you get stuck, please don't hesitate to ask again.

Kind regards,

Emily

Hi Tom,

You don't edit the invoice to be for £80, that's got to stay as £100.

When you upload your bank statement, the receipt will be only £80 because that's what the customer paid you. You need to change the amount of the receipt, which you would be classifying as an Invoice Receipt, to £100. Then the invoice will be fully cleared.

But that would mean your bank would be wrong, so FAC will automatically put in a payment of £20 for you to explain.

Explain that payment as PAYE/NIC so that it stays off your profit and loss account.

I hope that helps but if you're still not sure, let me know.

Kind regards,

Emily

No problem Tom, do ask if you get stuck!

Kind regards,

Emily

Hi Tom,

I'm not quite sure what you mean by "that transaction deducts the balance owed" I'm afraid.

Are you able to send a screenshot of this to me at emily[at]freeagentcentral[dot]com please, so I can have a look at it? That'd save you having to write a long description.

Kind regards,

Emily

Hi Tom,

Thanks for the screenshot.

Unless you have a payroll which this is going to confuse, I wouldn't worry about it.

Does that answer your query please?

Kind regards,

Emily

Hi Tom,

I certainly wouldn't worry about it. But if your accountant is concerned then please do feel free to ask him/her to talk to me/us.

Kind regards,

Emily