CIS Tax Issues with HMRC

Case Study

CIS Tax Issues with HMRC

We helped the client avoid paying huge amounts of tax and helped offset the taxes owed, against the taxes owing to HMRC. Ultimately, to improve the cash flow within the business.

About the client

Superior Mechanical Services Limited is a construction company based in South East London, founded by Ryan Neal in 2020. Katie Morrison later joined the business. The organisation contracts over 40+ subcontractors, each week, working on various large commercial buildings in and around London.

Key Challenges

Being a CIS Subcontractor means 20% tax is deducted from all of Superior Mechanical Service’s sales invoices, when paid to them. At the same time, the Superior Mechanical Services, is also a CIS Contractor.

This means when the company pays is sub contractors, it is responsible for deducting 20% tax from the amount paid to their subcontractors. This amount is collected and paying over to HMRC on the subcontractors behalf.

The CIS being deducted on sales invoices was far greater than the CIS suffered on subcontractor purchase invoices. This lead to a cash flow issue. As there is less cash in the bank account to meet its CIS liabilities.

Solution Implemented

The experts at Pennyhills used their experience in dealing with similar situations with HMRC to offset the amount of CIS owed against the CIS liability and other taxes like VAT and Corporation tax. This ensured that the amount of CIS owed was manageable and there were not large cash outflows from the bank.

Final Outcome

With the help of the experts at Pennyhills, the CIS liability of circa £200,000 was offset and CIS Gross status was applied for and granted. CIS is no longer being withheld on sale invoices. The cash flow is healthier and allows business expansion, if and when required.