BOX 7ON VAT RETURN AGAIN - The Book-keepers Forum (UK)

Lizzy D · Newbie

BOX 7ON VAT RETURN AGAIN

semsley · Guru

Payments into a personal pension are exempt supplies and as such should not appear in Box 7.
Payments to sub-contractors if they are CIS with the tax deducted then they should not appear. If they are VAT invoices they should.

Rhianrach · Expert

semsley wrote:

Payments into a personal pension are exempt supplies and as such should not appear in Box 7.
Payments to sub-contractors if they are CIS with the tax deducted then they should not appear. If they are VAT invoices they should.

We do, we have one contracter who is vat registered and yes he goes into the box. evileye

RobH · Expert

Hi Sheila,

I've always included subbies, vat registered or not. Is that definitive? I just always assumed it was a taxable expense unlike wages. Perhaps I need to alter the way I do this then!

Rob

Stardoe · Guru

Rob,

I've always included sub-contractors, VAT registered or not, CIS deducted or not, as well.

Pauline

RobH · Expert

Can anyone clarify this point please?

Rob

semsley · Guru

There doesn't seem to be any guidance on this on the VAT website, however, from the below which is on the website:

"Paying subcontractors

When HM Revenue & Customs (HMRC) verifies a subcontractor, they will tell you how to pay them. This could be:

* gross - meaning you don't make any deductions
* net of deductions at the standard rate (20 per cent)
* net of deductions at the higher rate (30 per cent), because the subcontractor isn't registered or couldn't be verified for some other reason

If you don't need to verify a subcontractor because you've included them on a previous Construction Industry Scheme (CIS) return you should pay them the same way you paid them last time. HMRC will let you know if they change a subcontractor's payment status.

Making deductions

To make a deduction from a subcontractor's payment, start with the total - gross - amount of the subcontractor's invoice and then take away:

* any VAT they've charged
* the amount of any Construction Industry Training Board levy they've paid

Then take away the amount the subcontractor actually paid for each of the following, including VAT if they're not VAT registered:

* materials
* consumable stores
* fuel used - except for travelling
* plant hire
* manufacturing or prefabricating materials

Finally, apply either the standard or the higher rate percentage to the amount that's left to work out how much to deduct.

Making payments to subcontractors

Once you know how much to pay the subcontractor you'll probably pay it to them directly. But they could authorise you to pay a third party like a factor.

Keep a record of every payment you make to a subcontractor. Include details of:

* the gross invoice amount excluding VAT
* if you made a deduction, the actual cost of any materials (excluding VAT if the subcontractor is VAT registered)
* any deduction you made

Making payments to HMRC

The deductions that you take from a subcontractor's pay will need to be paid over to HMRC."

It would appear to me that because what you are in essence paying the sub-contractor is akin to wages it should not appear as a purchase on the VAT return.

RobH · Expert

I see what you mean Sheila however I feel if a subbie can be vat registered then it is a taxable input whether vat registered or not. It of course won't make any difference to the amount of vat payable so probably not a crucial point.

Rob

Maxholt · Veteran Member

I always include gross payments to sub-contractors in Box 7 (both those who are registered for VAT and those who aren't). Sub contractors have to register for VAT if their turnover reaches the VAT threshold - therefore all sub contractors are making taxable supplies.

Many years ago an accountant told me that he was ticked off by a VAT inspector for not including sub contractor payments on VAT returns - at the time he said he had excluded these payments as he regarded them as 'wages'.

Considering that HMRC require the employer/contractor to decide whether a sub contractor is a bona fide self employed individual or an employee I always avoid referring to these payments as 'wages'!