We have recently used two sub-contractors who are not VAT registered (we are) They are used for labour only (no materials). You suggest that we record their net payment to be within the scope of VAT and the tax deductions as being outside the scope of VAT. Is this correct as I do not see how their net pay in within the scope of VAT?
The sub-contractors are registered with the CIS scheme
Hi Peter,
Unfortunately, HM Revenue and Customs don't offer clear advice on how to treat purchases from someone who isn't VAT-registered. Here's an example of the confusion:
http://www.ukbusinessforums.co.uk/forums/showthread.php?t=77373
Our understanding is that these types of purchases are 'zero-rated' and should appear on Box 7 of your VAT return. Therefore, you should create a purchase invoice as in the following example, but set the VAT column to 0%:
http://www.solaraccounts.co.uk/help/cis-notes-for-contractors-vat.php
I hope this makes sense - let me know if you need more information.
Cheers,
