Jake is an electrician in Reading and is registered as self-employed with HMRC. He has won a piece of work for the building company London Construction Ltd. At the end of the job he bills for the work, £1,000 for labour and £500 for materials, he is not VAT registered as he is in his first year, and his turnover is under the VAT registration limit.
London Construction Ltd successfully verifies Jake using his UTR (unique tax reference) and his NI (National Insurance) number. He is not gross registered as yet, so they will need to apply 20% on the labour element.
Jake’s bill is:
- £1,000 Labour
- £500 Materials
- £1,500 Total
London Construction Ltd will pay the following to Jake:
- £1,000 less 20% CIS = £800 labour
- £500 materials
- £1,300 Total
London Construction Ltd will give Jake a CIS payslip confirming the £200 deduction at the end of the month.
Jake needs to ensure he records this transaction as follows, for his end of year accounts:
- Sales £1,500 credit
- CIS paid £200 debit
- Bank £1,300 debit
He can then offset the CIS tax already paid against the tax due for that year. If he is working on mainly CIS jobs he could potentially receive a tax rebate.