Can I Be Charged Vat On My Labour?

[PeelerPal]

I am a sole trader and I have been contracting for a large multinational company. It has come to my attention that this company deducts 20% VAT from my labour. I am not VAT registered so therefore I do not charge the company VAT so how can the company charge VAT to my labour if it is me providing the labour?

Eg, labour charge is £500, the company will deduct 20% VAT then 20% CIS and I am left with the remainder.

I hope this makes sense, I hope Ican get a good answer before I see my accountant, thanks ladies and Gents

[magsmay]

no this is not correct -its not up to them to deduct anything for VAT -if you were VAT registered you would add this as a separate cost on your Invoice and they would pay the 20% to you and claim it back -you would send the 20% VAT you collected to the VAT office, usually quarterly -you need to go see their accounts department.

[WELSHYORKIE]

Peeler, what work are you in? In the construction industry the main contractor has to deduct income tax from the labour element of any sub contractors invoice if he has no UTR (Unique Taxpayer Reference). My guess would be that this is what the deduction is for.

[PeelerPal]

Thanks Magsmay, I thought that was the case, it seems like something isn't right but i will have to dig a little deeper because I am sure a company of their size is probably finding some loophole but when I am having nearly 37% of my bottom line deducted then I think I should be entitled to a viable expltion but when I ask I get the huff of breath response as if to say, I am stupid and should know why they do it but I don't and I am not :)

[PeelerPal]

I am in the CIS scheme for this company and I do have a UTR and have since becoming a sole trader in 2004. I have been told by the company that they do deduct tax and VAT from the bottom line, however, when I do work that needs me to supply materials, tha manager bumps up the price of my invoice so I get what my invoice is asking as to account for vat so that I get the invoice cost lestt CIS?

[WELSHYORKIE]

Peeler, this sounds all wrong to me - if you are not VAT registered then you are not charging VAT so how can they deduct it? I would definitely see their accounts people and if you are not satisfied with the answer, speak to HMRC

[magsmay]

Peelerpal - If you were registered for VATand your invoice was for £1000 your invoice would read - labour £1000 VAT £200 total invoice £1200. To pay you they would take your Invoice (not including VAT) and deduct your CIS tax liability . You would receive a payment of £800 ( £1000 minus CIS deductions) PLUS the £200 VAT . You then would have to pay the VAT office the £200 yu collected for them -while meanwhile the Company you are subbing for could claim back this VAT payment. As you are not registered for VAT the only deductions the Company need to make are for CIS Tax

[PeelerPal]

Thanks Welshie, I think I will need to speak to my accountant (which will cost me) and pssibly seek legal advice as I have been told numerous times that what they are doing is certainly sinister. It is a little more complicated as they charge the customer VAT but I don't see how that should affect me, I dunno, I could just be causing more le than it's worth although they have had around 5k off of me in VAT deductions alone

[PeelerPal]

I completely agree Mags, thanks, I did think I was going mad but it makes sense for ME to be charging them VAT not the other way around. I am not VAT registered so I do not charge VAT, so why are they charging me VAT, just nonsensical crap if you ask me. Another problem I have is on my Self billing invoice, the company do not show the vat deduction but I know what I should be getting paid an what i actually get paid

[WELSHYORKIE]

5k is a substantial amount of possible illegal deduction, Peelerpal. My advice would be to seek professional advice. Difficult to advise on here without seeing some of the actual paperwork.

[PeelerPal]

Thanks alot to you both, I think it is in my interest to get this looked into, I appreciate your time :)

[WELSHYORKIE]

My pleasure, Peeler, and good luck getting it sorted.

[tamborine]

Seems HMRC decide whether you receive gross payment, read here

http://www.hmrc.gov.uk/cis/subcontractors/advice-pay.htm

[magsmay]

Tambo -CIS deductions are Income Tax not VAT -the OP was asking about VAT deductions

[PeelerPal]

Thanks Tam but its the VAT deduction that is my query not CIS. The CIS deduction is shown on my invoice but vat is not shown although I know they do deduct it, the company have told me that I could claim the VAT back if I were VAT registered but I am NOT and I am not the one charging VAT, they are and if I am able to claim it back, why are they not showing the deduction on my invoice?

[WELSHYORKIE]

Peeler, do you get a payment certificate with your payments showing how your payment is made up?

[tamborine]

this is further down the link, if it helps

But VAT, the cost of materials and certain other costs like plant hire don't count as pay, so the contractor will exclude them when they work out how much to deduct.