start afresh update

[twilight]

It's been awhile since my post asking for help starting a new company file without the clutter of my prctise file. I did try the condense & archive route but as I have payroll, it would'nt let me. I actually did in the end, PaulGd advise and imported every thing except the chart of accounts and it worked.

Many thanks for all your advise. I do have another query though and that is what to do with subcontractors ( I have a construction business) who I have to deduct 18% tax. How do I enter the invoice, how do I then pay the invoice but deducting the 18% and where to put the tax, i:e, do I create an account just for this?

Ken

[PaulGD]

Ah! good old CIS! Yet another poor soul working nearly full-time as an unpaid tax collector.

Quickbooks isn't brilliant at handling CIS (Construction Industry Scheme) tax deductions, but I have made it work, after much trial and tribulation.

The biggest problem is that the rules state that the tax should be deducted from PAYMENTS made to sub-contractors. Naturally, you, like any sane person, want to account for the tax via the INVOICE, which then triggers the payment. Not quite the same thing.

CIS4 deductions work best where Invoices and Payments are both made within the same tax month. This way, for each Subbie, you have a list of invoices, a list of payments (might be only one) and a breakdown of the tax deducted from each invoice. However, in reality, you probably pay your subbies the following month, so you have to back-analyse the deductions included in the payment, and issue the CIS25 voucher on that basis.

Another issue is that you'll probably end up accounting for the 18% to the Tax-Terrorists the month before the payments actually go out, but I haven't found a way round that one, given that they have only very limited understanding of how real businesses actually run.

If you'd like some further details of how to bend QB to handle CIS4, 5 and 6 deductions/payments mail me here:

paul@grattan-uk.com

[twilight]

Thanks for your reply Paulgd. I was hoping I could split the invoice with one part posted to say a subcontractors account ( the amount of invoice but less the 18%) and one part (the actual 18% tax, posted to say a CIS account) and then pay the tax liability from there. Would this work?

Ken

[hartford]

Hi twilight
As has PaulGD points out the tax is triggered on payment not invoice. Therefore I think one way, if a little inelegant, is as follows:-
1) Enter the s/c invoices in the normal way with no entry for the tax.
2) Use the Write Cheques routine to pay the s/c the net cheque and then in the 1st Line of white box below enter the purchase ledger a/c, GROSS amount of the invoice,supplier name under Customer:Job & then 2nd Line create a current Liability for S/C tax control and enter a NEGATIVE amount for the tax deducted.
3) Your s/c tax control will then have the tax deducted as credits and the payments you make as a debits, the balance being the tax you owe.
4) Oh I forgot you have not matched the invoice against the payment yet so you can use Pay bills and the "zero cash sum trick" to do this.
Must admit have never used "my way" before but it should work and it keeps everything in order - costs, creditors, tax, bank, which is the paradise we all seek.

[PaulGD]

The negative amount for the tax deduction is indeed the key, but I prefer to show it on the invoice, for tidiness' sake. All the analysis relating to purchases is correct if you do this.

The accounts you need to set up are:

1. CIS4 S/C Purch (Mats) - COG Type
2. CIS4 S/C Purch (Lab) - COG Type
3. CIS4 Tax Deducted - Current Liability Type

(1 and 2 can be sub-accounts of a "Sub Contractors Purchases" account if you wish)

Each S/C invoice then needs to be analysed and entered in exactly this way, with a/c 3 always showing a negative amount of 18% of a/c 2. The invoice total, of course is the NET payment amount which will be handed over, whilst the amounts in 1 and 2 accurately reflect the Cost of Goods (i.e. Gross Purchases) on that transaction. Take extra care where the subbie is VAT registered - the CIS deduction must be entered with no VAT component, so the amount of VAT reclaimed as input tax is 17.5% of the gross amounts, as shown on the invoice.

With a bit of work, you can set up some decent reports to analyse the various elements for the monthly routines, and assist with the completion of vouchers. Use "Supplier Type" for filtering, and set up custom fields on the supplier header to record Cert No., NI No., Cert Expiry date (for CIS5 and 6 subbies) etc

Regarding the invoice vs payment argument, by far the easiest way to handle small subbie bills is to pay them off in the same month. That way the tax liability declared and paid over is the same as the value on the CIS25 vouchers. Where this isn't convenient and you pay the subbie the following month, you have to re-analyse the payment to show the correct amounts on the voucher - especially if the payment clears more than one invoice.

The CIS liability is, of course, cleared down monthly with a liability cheque to the IR and the amount is included in your PAYE Income tax figure, if you pay any.

Final note - there are proposals out to completely change the way the CIS system works. Vouchers will disappear and you'll submit a monthly report instead. Although the basic principles of the deductions system will remain, it might be better not to spend too much time making your QB set-up all-singing, all-dancing in this area until the new system is implemented.