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VAT has not been paid


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Hi. My friend have a problem, he is VAT registered. He used to work for company that did't pay him VAT for last few invoices, they paid him CIS but not VAT. Is there anyway to avoid paying this from his pocket without taking company to court?

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Hi. My friend have a problem, he is VAT registered. He used to work for company that did't pay him VAT for last few invoices, they paid him CIS but not VAT. Is there anyway to avoid paying this from his pocket without taking company to court?

 

Did he invoice them for VAT?

So if he wanted to invoice them for (ex VAT) £100 labour, £30 materials, he should have invoiced :

 

Total £156 as :

VAT £26, subtotal £130

Less materials £30

Balance £100

CIS on this (@ 20%). £20 (deduction for CIS)

 

He invoices for £136 to him (including VAT) and £20 CIS,

 

 

The total is still £156, of which £20 is CIS and £26 VAT.

 

Are you saying he invoiced £156 and the company only paid £110?

If they paid him £136 and £20 CIS then:

a) the company HAS paid VAT

b) he has to pay the £26 VAT to HMRC (or reclaim it from VAT he has paid out)

 

If he invoiced £156 and they only paid £110 and £20 CIS he'd have to ask them to pay the £26 VAT or threaten legal action.

 

He gets left with £110 for labour and materials. The materials are £30

 

He gets left with £80 (which is his £100 labour less the £20 CIS, as tax paid in advance of his tax return)

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Unfortunately he invoiced them for labour, CIS (those two were paid) and VAT was't included so they paid labour and CIS, VAT is not paid. He did send them and email saying that he will be getting legal advice on this. I'm pretty sure his VAT is due now or anytime soon and he does't wanna pay it from his own pocket. Any chance to get this sorted with HMRC without paying it?

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Unfortunately he invoiced them for labour, CIS (those two were paid) and VAT was't included so they paid labour and CIS, VAT is not paid. He did send them and email saying that he will be getting legal advice on this. I'm pretty sure his VAT is due now or anytime soon and he does't wanna pay it from his own pocket. Any chance to get this sorted with HMRC without paying it?

 

Your original post noted he was VAT registered. If he is VAT registered it isn't unreasonable for the company he invoiced to assume VAT was included if the invoice didn't overtly state "exlusive of VAT", and if he now goes back to them they'll likely say "tough".

 

Did he just not mention VAT at all on his invoice? Did his contract mention VAT at all?.

 

Equally, he can't say to HMRC "I forgot to charge VAT, so I'm not paying it"!.

 

Did he get advice from an accountant when he registered for VAT? If he did and they advised him poorly, he may have a claim against their insurance. He could speak to an accountant now (since I'm NOT an accountant!) in case he has a "get out", but I suspect it is his error, and he'll have to pay the VAT.

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Additionally:

 

1) were any of the jobs zero-rated? There may not have been any VAT to charge! (e.g. for a new-build)

2) If there is VAT to pay and he has just been careless, he is better getting HMRC on side by approaching them, rather than when they come looking for him : see

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/473319/CC-FS7a_10_15.pdf

If he files a false return, they'll hit him with a penalty as well as the VAT!.

 

I suggest he speaks with an accountant experienced with working with builders, both to sort out what should have been charged VAT and what was zero-rated, and to present HMRC with a proposal and explanation.

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Just seen his invoice and he have on it Total: let say invoice was for £3900, Cis 20% £780 Vat £780 plus materials £300 so they should pay him £4200 but they did't. They paid him £3420 only. As far as I can see from this what he told me his accountant is not very good in sortong thinks like that. Thats why he ask me if I could try to find out how to get it sorted. I know this boards are very good thats why I ask question here :)

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Just seen his invoice and he have on it Total: let say invoice was for £3900, Cis 20% £780 Vat £780 plus materials £300 so they should pay him £4200 but they did't. They paid him £3420 only. As far as I can see from this what he told me his accountant is not very good in sortong thinks like that. Thats why he ask me if I could try to find out how to get it sorted. I know this boards are very good thats why I ask question here :)

 

They deduct the CIS, and pay it to HMRC so some of his tax liability gets paid upfront.

If he invoiced them for £3900 and £300 materials, that's £4200.

If they paid him £3420 : that's £4200 less the £780 CIS deduction

 

Total invoice £4200

Less VAT £700, VAT exclusive is £3500.

Materials £300, balance is £3200.

20% CIS deduction is £640

 

They should pay him £3560, holding back £640 CIS.

He then pays £700 VAT, leaving him £2860 (though he can claim back the VAT he paid on materials)

Paying £300 for materials he is left with £2560, though £640 of his income tax bill has been paid.

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I'm getting confused with all that. Why would they pay him CIS and VAT before? It was all fine until March I think, they used to pay him all the money and than they stopped paying him at all. So they own him about 20 k, he said to them that all he want from them is the VAT from those invoices. They never came back to him.

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I'm getting confused with all that. Why would they pay him CIS and VAT before? It was all fine until March I think, they used to pay him all the money and than they stopped paying him at all. So they own him about 20 k, he said to them that all he want from them is the VAT from those invoices. They never came back to him.

 

"Why would they pay him CIS and VAT before?" : Before when??

 

"Why would they pay him CIS and VAT before?" : was he VAT registered "before"?.

If not, then he may not have charged VAT.

 

CIS is mandatory, and they don't pay him CIS : they deduct the CIS from what they pay him, and pay it direct to HMRC.

 

 

When you pay subcontractors, you’ll usually need to make deductions from their payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.

https://www.gov.uk/what-you-must-do-as-a-cis-contractor/overview

 

" It was all fine until March I think, they used to pay him all the money and than they stopped paying him at all. So they own him about 20 k," : which is a completely different issue.

 

"I'm getting confused" " you aren't the only one. You said he was paid, but not the VAT : but posted that he hadn't invoiced them for VAT : so they likely felt VAT was either

a) not charged, or

b) already included.

 

You said he was paid : "company that did't pay him VAT for last few invoices, they paid him CIS but not VAT"

Now you are saying he wasn't paid : how do you expect valid advice when we don't know if he was paid or not?.

 

With the lack of understanding of VAT, CIS and the issues between him, then you, and your posts here, I fear it'll be a major undertaking to get it completely clear.

 

You might be better to start again, but with a clear statement of the issues, or get him to post so you aren't "in the middle' and potentially adding a layer of uncertainty.

Alternatively send him to an accountant (a different one to his current one if he has doubts about his current one) ; he may have to pay but it could be far cheaper than falling foul of HMRC!

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Someone else might be able to help then, as "I'm out".

I've replied 5 times already, and only now found out you've only given part of a complicated story.

 

I prefer to help those who help themselves by getting the story straight from the off: how do you expect to get valid advice if you change the story, or oversimplify a complex situation?

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