CIS Credits

Hello Christine-bulbec, Thanks for posting on the Community page, A credit note is Quickbooks will not have CIS amounts on them. You would raise the credit from the amount outstanding on the invoice that is to be credited and assign it as usual.

Hi @christine-bulbec 

The truth is that Intuit / QBO do not understand CIS. Certainly not when it comes to credit notes.

It's been raised as an issue on here many times over the last few years (both sales & purchase credits have the same problem).

By not building in the CIS function into Credit Notes, QBO treats them (for CIS purposes at least) as a part payment rather than a reduction in the value of the work done. Since CIS is cash-based (the deduction date is the date of payment) QBO is effectively saying that the work was done, the credit note was the payment & the deduction is owed to HMRC.

Ridiculous!

There are a couple of options for a workaround but I think the most straightforward is to edit the Bill in QBO so that it's split over two lines:

   (1)   CIS20%

   (2)   Materials (which is equal to the value of the credit)

Now enter the credit as Materials.

As long as this is done before the bill has been paid (or relevant CIS Return sent), this should leave all accounts (as well as CIS & VAT) correct.  I don't use QBO to file CIS so the return would need to be thoroughly looked over before sending to make sure it works.

Hope this helps.

This is indeed the most sensible answer I have had all day!  You are right, the system is totally in-ept when it comes to their CIS module.  I have worked for 30 years with Sage, never touched QB until my new employment and although it has some fab sections, the CIS does not!  I spent over 3 hours alone last week emailing out just 20 CIS deduction certs because the system cant email them itself, let alone in one batch!  

Sadly my credit note issue is to clear out very old CIS invoices (oh yes bills!) posted to a subbys ledger.  The bill has been part paid to subby, its the balance that is not being paid to subby, I need to raise a credit for.  But like you say, if I post the credit to the invoice balance it sends it to a CIS return!!!!!!  And his invoice is for all labour, so no materials to even be able to use the method you have kindly recommended.  

Its back to the drawing board, or maybe raise the credit and post it to the invoice and ensure I check the CIS return done via Gov site in a few weeks time is processed correctly 

Hi @christine-bulbec 

Sorry - I should have explained a little deeper.  What you're actually trying to do reduce the value of the original Bill to the amount that's been paid.  However, if you do this, you'll upset the VAT Return, etc.

(I presume that you have reclaimed VAT on the full value?)

The trick in splitting the invoice is to make it partly CIS-able & partly non-CIS-able (excuse the syntax).  Since the Supplier Credit will be treated as a Payment by QBO you have to make that Payment non-CIS.

I chose Materials because it's CIS related (without being deductible) & might make the process a bit more obvious if it's viewed at a later date - but you could just as easily make this another account/category.

Where I'm at a slight disadvantage is not using QBO to file CIS Returns (although you might envy that!) - so I'm not entirely sure how modifying old Bills will affect Filed CIS Returns.

If QBO was correct in its handling of CIS then only actual Payments should affect the CIS Returns & amending a Bill should not upset the Returns - it should simply reduce the CIS Withheld Liability account.

However, as I know that Supplier Credits are treated by QBO as Payments against Bills, I added the comment about thoroughly checking the Return(s) afterwards.

Hope this all makes sense (I've re-written it a few times & it's all starting to blur!).

Let me know if not & I'll try to follow up with an example.

Hi,

Sorry to jump into this conversation with my own problem but it is quite similar to yours. 

I received credit notes from a subcontractor for full amount of original invoices, who standard 20% and no VAT registered. 

When I try to apply the credit notes the following error message comes up:

" This transaction can't be saved because it is in a CIS period that was marked filed. To make any changes unfile the CIS return associated with this period."

I find it really annoying because that subbie invoice wasn't part of the CIS return as no payment was made at all. Only filed in VAT return.

Have you found a way around to do in QBs not messing around any filed in CIS or VAT return?

Thanks, and sorry again to jump into this conversation just like this. :)

Hi Virag

Sadly, not being familiar with QB at all (a newbie to this programme after using Sage for over 30 years!) I don't know the answer.  Normal circumstances I would have posted the credit note with a date outside of my CIS return date and posted one against the other.  

Maybe @paul72 can advise if he picks up this thread 

Hope someone can resolve this issue for you.  

Christine 

Hi @Virag 

Firstly, are you certain that the unpaid invoice was not included in any CIS Return?

(since I don't use QBO for CIS Returns, this was the part I was unsure about in my earlier post)

The problem you'll have - even if you enter the Supplier Credit into QBO using today's date - is that QBO will treat it as a Payment against the Bill which will automatically create the 20% liability to HMRC.

The invoice will have been 100% credited (so no work will have taken place) but QBO reckons you still owe 20% to HMRC.  The only people this makes sense to seemingly work at Intuit - or are locked up for public safety!

The fact that the Bill is in a Filed VAT period makes it a bit awkward to remedy.

You could simply Void the original Bill in QBO - but that would create a VAT Exception.  As you mention that the supplier is not VAT registered, it doesn't affect any VAT Liability ... but, still, I don't like VAT Exceptions so I probably wouldn't go that way.

I think the best workaround is the one I suggested earlier.

Edit the original Bill to remove it from CIS altogether (you have a 100% Credit so the debt technically doesn't exist & so cannot reasonably be inside CIS).  Change the Category from CIS Subcontractor 20% to a non-CIS category.  Keep the VAT as Z=0% so that the Filed VAT Return will be unaffected.  You will probably get a pop-up to say that the CIS is mismatched and/or the Bill is in a Filed period but you should be able to OK your way past them.

Now enter the Supplier Credit  using the same Category as the one you've just used on the Bill.

The Bill & the Credit are now outside CIS (as far as QBO is concerned) - so it doesn't matter that QBO treats the Credit as a Payment.

One last thing - you will need to use Receive Payments to clear the credit against the bill so that both are Closed.

Hope this helps.

My day is just getting worse and worse.................................I made a payment to subby last week (28th) £25k against an invoice for nett £40k.  The difference of £15k was a journal hanging on his ledger.  I allocated this journal, using the 28th date BUT qb has allocated the CIS on this £15k TO MY 5/4/23 RETURN!!!!!   

All I can thank them for is that QB do not feed the CIS deductions to HMRC, you still luckily have to access the Gov Gateway to process your return manually........so I can adjust it but if this were in 2 different tax years and I did not pick up this would have been horrendous!!!!!   

Hi @paul72 

Thanks for your reply. Changing the chart account to something else for the original invoices did the job. I was able to apply the credit note after.

Have a nice weekend.

Hi @paul72.

It is me a again on the note that you don't like VAT exceptions.

I am preparing my VAT return for first time in QBs and on the VAT return in BOX1 and BOX 4 I got the same negative amount under Exceptions. I've made changes on those transactions as wrong VAT rates were used at the time of recording.

I checked the exceptions list and it includes both sales and purchases where I get really confused. Why would QBs add purchases in BOX1???

(FYI: Cash basis)

Thanks if you could explain that to me as well. :)

Hi @Virag 

I saw the question but I don't think I'm going to be much help on this one.

I always correct filed errors by adding a transaction or journal in the current quarter - so I have never needed to look at how exceptions are handled in QBO.

(the version of QB Desktop I used did not allow edits transactions after the VAT Return was filed & it's a workaround that I stick to in QBO)

There is VAT Exception Report (in Reports) which might throw more light on it for you.  Try to focus on one transaction at a time.

Or Audit History will show changes made to each transaction.

One of these ought to help you see the Exception for each transaction - rather than all together.

It might be worth adding a bit more detail to your question.

Did you edit just sales or purchase transactions - or both?

The Cash Basis might be relevant too.

I know I'm a year late to the party - but this explanation was a light-bulb moment for me.  I have assumed for 3 or 4 years that HMRC don't allow CIS deductions in 'reverse'.  Then finally a supplier (who clearly uses Xero or SAGE) offered us a C/N with CIS 'reduction' and I found myself here.  I was so sure it was not possible I nearly wrote to the supplier and told them what they were doing was against the CIS rules!

Paul72's excellent explanation re reduction / part-payment is clearly spot-on.  

The reason for the message is that I do use QB to file CIS and I wasn't too happy about the workaround solution of listing materials that then get credited.  I saw the potential for difficult questions in 6 years time when I will have no idea why I've listed materials that were not on the original invoice.

My solution is to follow the same idea but to use a second Standard CIS deduction 20% line instead of Materials and then describe it as Credit Note NNNN and then enter the gross credit note sum in negative.

Like this:

CIS Cost Standard 20% /  "Some sub contract work" / 100.00 / VAT etc

CIS Cost Standard 20% /  "Credit note 10001 - work not done" / -50.00 / VAT etc

This achieves the same result - the CIS deduction for the credited portion is removed, but it does it in a manner that reflects the actuality slightly better for my purposes.

I need to stress that this is no way intended as a criticism of the original solution which may work better for someone else.  Without Paul72s suggestion I'd wouldn't even know I didn't know!

Nice clear post @Jon67 

Glad to have given you the lightbulb moment!

Without reading back over the whole thread, I think the OP had already filed VAT on the original invoice so the workaround had to preserve the invoice totals - otherwise a VAT Exception would have been created (which I dislike even more than QBO's handling of CIS).

For credits against unfiled invoices, your method is spot on.