We are often asked how to treat certain accounting elements using various software. One such problem we have recently been asked is how to deal with CIS tax deductions for subcontractors using Sage Accounts. Our client had received payment of some invoices minus the normal 20% deduction of CIS tax on the labour element of the invoice.
There are many solutions to this problem, however, we are firm believers of making matters as simple as possible, and therefore for this client we recommended the following solution. As with most bookkeeping issues, there is rarely a “one size fits all” solution in these areas, so please contact us if you would like to know if this is suitable for your needs.
For our client we wanted to make matters as simple as possible to ensure aged debtors are cleared properly when invoices are paid (removing the CIS element that remains “unpaid”) and ensuring that the bank is correct showing the banking net of CIS tax. Out solution was as follows:
1) Set up a nominal code for CIS deductions in the profit and loss codes (say 5005 – it makes no real difference).
2) When a receipt is made for the payment of the invoice which has suffered CIS tax – treat it as paid in full. Ignore the CIS tax deducted. This will then show as clearing the debtor, and a full receipt to the bank.
3) Make a journal for the CIS tax deduction. For this you will need to debit the CIS tax deductions nominal set up in (1), and to credit the bank. This reduces the amount which was actually banked to the correct level (i.e. net of CIS tax). Make a reference as invoice number/name so it can be tied up when preparing the accounts as CIS deductions are very important in the accounts and tax return preparation.
4) When you reconcile the bank beware that it will require you to look at a banking which doesn’t exist (i.e. gross) and a bank payment which won’t be on the bank statement (i.e. the journal for the CIS deduction). However, if both are dated the same date, it should be pretty clear/obvious especially if you keep on top of matters!
5) Marvel at your work showing the correct bank and debtor reconciled and make yourself a congratulatory cup of tea. Eat a biscuit or two.
Easterbrook Eaton Limited are members of the Sage Accountant’s Club, have the first two Certified Clearbooks Trainers in the South West and have over a decade of experience with QuickBooks. Please contact us on any software questions on 01395 516658 or visit our website at www.easterbrooks.co.uk.